ISLAMABAD: Pakistan is considering an asset-based taxation model for traders after international lenders urged the government to bring undocumented businesses into the tax net, sources familiar with the discussions said on Tuesday.
The proposal emerged during consultations with the International Monetary Fund (IMF), which asked authorities to explore new ways to tax traders who largely remain outside the formal taxation system despite repeated policy attempts.
Officials said the proposed framework would calculate tax liabilities based on the value of assets owned by traders instead of relying solely on declared income. The idea aims to capture revenue from businesses that operate informally and do not submit income tax returns.
However, the Federal Board of Revenue (FBR) has shown reluctance to implement the plan. Tax authorities argue that most traders do not file returns, making it difficult for the government to determine the value of their assets or calculate accurate tax obligations.
Previous trader tax schemes failed
Pakistan has introduced several schemes over the past few years to broaden the trader tax base, but none produced meaningful results.
Under one initiative, the government attempted to collect a fixed income tax from retailers through electricity bills. Political pressure forced authorities to withdraw the plan after strong resistance from trader associations.
Later, the government launched a trader scheme aimed at generating Rs50 billion in tax revenue during fiscal year 2024-25. The policy imposed a fixed monthly tax ranging from Rs100 to Rs60,000, depending on the size of business premises.
The scheme applied to retailers, distributors, manufacturers-cum-retailers and importers operating in 42 major cities across Pakistan, including Islamabad and provincial urban centres.
Despite these efforts, compliance remained extremely low. Authorities struggled to convince traders to register with the tax system, while several trade bodies organised strikes to protest the policy.
Revenue pressure on government
Tax officials say the weak contribution from the retail sector continues to widen the burden on other taxpayers.
During the first eight months of the current fiscal year, traders contributed around Rs28 billion in withholding taxes, while the government collected another Rs17 billion at the supply stage.
In comparison, salaried individuals have already paid over Rs350 billion in income tax, highlighting the imbalance in Pakistan’s tax structure.
Digitisation seen as alternative
FBR officials believe the long-term solution lies in documentation of the retail sector rather than temporary tax schemes. They have pushed initiatives such as Point of Sale (POS) integration and digital invoicing to track transactions and bring traders into the formal economy.
However, policymakers acknowledge that these measures alone may not generate the revenue needed to meet Pakistan’s ambitious tax targets.
The government currently faces a significant shortfall in revenue collection. Authorities estimate that the Federal Board of Revenue could miss its annual target by Rs800 billion to Rs1 trillion, forcing policymakers to explore additional taxation measures.
If adopted, the proposed asset-based tax could become part of broader fiscal reforms aimed at expanding the tax base and reducing Pakistan’s reliance on indirect taxation.