THE FBR’s draft simplified tax regime for small shopkeepers is the latest in a long line of attempts to persuade Pakistan’s vast retail sector to enter the tax net. By offering a turnover-based tax of just 1pc, exemptions from routine audits, withholding tax obligations and mandatory digital invoicing, the government hopes to make compliance more attractive. Yet there is little reason to believe this initiative will succeed where countless others have failed. Pakistan’s retail sector has remained one of the country’s largest untaxed or undertaxed segments despite repeated experiments under both military and civilian governments. Successive administrations have introduced fixed tax schemes, presumptive taxes, negotiated settlements and voluntary arrangements, each promising to broaden the tax base without provoking confrontation with traders. The outcome has been remarkably consistent: negligible compliance.

The reasons are political. Traders enjoy organisational strength and political influence. Their ability to shut down markets across the country has repeatedly forced governments to dilute reforms or abandon enforcement. Every retreat has reinforced the belief that organised resistance eventually secures concessions. This has weakened the state’s credibility and encouraged a culture of negotiated compliance rather than compliance under the law. The latest proposal follows the same pattern. Although not formally described as one, it bears all the characteristics of another tax amnesty. The state is again offering generous concessions. These are substantial incentives for a sector that has historically contributed nothing to national revenues. The question is, why would traders who have ignored repeated tax efforts comply now. Almost every trader will continue to view non-compliance as the cheaper option, while penalties will be difficult to impose due to fear of losing their support. Pakistan cannot broaden its tax base through voluntary schemes alone. It requires political will to enforce tax laws impartially and resist pressure from powerful lobbies. If anything, the proposed scheme is likely to deliver even less, leaving our narrow tax base largely unchanged.

Published in Dawn, July 16th, 2026