As the federal government introduces another simplified tax system for retailers, skepticism is growing over implementation
LAHORE:
The federal government has decided to introduce a flat or simplified tax system for small traders and shopkeepers in the 2026-27 budget, with the aim of bringing more businesses into the tax net and generating additional revenue. However, previous experiences with similar schemes and existing tax collection trends have raised doubts about whether the initiative will achieve its ambitious goals.
According to budget documents, the government has introduced a simplified tax scheme for business operators with an annual business turnover of up to Rs 200 million. The scheme aims to encourage small businesses to register with the tax system, with officials expecting about Rs 50 billion in additional revenue.
Former member of the Federal Board of Revenue (FBR) Mustafa Ashraf considered the initiative a positive step but highlighted concerns over combining documentation efforts with a flat tax system. “The government claims to have about 4 million taxpayers and if 1 million taxpayers contribute Rs25,000 each, it can generate Rs25 billion. But similar business tax schemes introduced in the past failed to produce significant revenue,” Ashraf said.
For the financial year 2026-27, the FBR has been given a tax collection target of Rs.15.26 trillion, with the retail sector identified as an important area for raising revenue. Economic experts believe that despite being a major part of Pakistan’s economy, retail trade contributes relatively less to tax collection.
Pakistan has an estimated 3.5 to 4 million traders, but many remain outside the formal tax system. Successive governments have introduced various initiatives to document traders, including flat tax schemes, but most have not lived up to expectations.
A similar flat tax scheme was introduced in 2014 under the Pakistan Muslim League-Nawaz (PML-N) government, followed by other programs such as the Trader Friendly Scheme. Despite ambitious registration targets, only a limited number of traders became part of the tax system, resulting in a gap between expected and actual revenue collection.
Tax figures from the Lahore markets also show differences in business activity and tax payments. Reports suggest that Multan Road Market contributed about Rs10 billion in tax, while Wapda Town Market paid about Rs1.63 billion. Other markets including Urdu Bazaar Lahore contributed around Rs338.7 million while DHA Y-Block Market reported around Rs248 million.
Meanwhile, some markets reported much lower tax contributions, including Naulakha Bazaar with around Rs 14.2 million and Sarafa Bazaar with approximately Rs 2.35 million. Experts emphasize that these figures reflect the difference between actual business activity and tax payments in several markets.
Trade organizations claim that rising electricity costs, inflation and rising business expenses have already created difficulties for shopkeepers. However, the government believes that bringing retailers into the formal tax system will strengthen the economy and improve revenue collection.
The former President of Lahore Chamber Mian Muhammad Ali felt that the new FBR flat tax system was an important step. “The tax amount of Rs 25,000 is low and would provide traders with a tax certificate and protection from repeated audits and inquiries. Small retailers would actually pay around Rs 2,000 per month under the system,” Ali noted.
Ali proposed that the government keep the tax rate fixed for five years, arguing that since the system has been approved through parliament, any major changes should also require parliamentary approval.
Economic experts stress that the scheme’s success will ultimately depend on the government’s ability to bring millions of traders into the tax net and meet its revenue targets, rather than repeating the shortcomings of previous initiatives.
