Pakistan retail system under strain as FBR shifts model

Pakistan is considering a structural shift in its tax collection system as authorities grapple with widespread underreporting in the retail sector, where millions of businesses remain outside the formal tax net.

The discussion centers on long-standing weaknesses in the General Sales Tax (GST) regime at the retail level, where cash-based transactions and limited documentation have contributed to significant revenue leakage. To address these challenges, the Federal Board of Revenue (FBR) is reportedly exploring a factory-gate tax collection model under the proposed Third Schedule framework, shifting GST collection responsibility from retailers to manufacturers.

Supporters argue the reform could improve compliance and reduce evasion by tightening the point of collection, while critics caution that the change may ultimately lead to higher consumer prices if costs are passed down the supply chain.