Retailers on tax net jump 31%

Tax payments rise 16% to Rs132b but doctors resist integration

ISLAMABAD:

After a lull, the government's drive to integrate large retailers with the tax system picked up momentum in the last fiscal year and the figure jumped to over 17,300 businesses – an increase of nearly one-third, amid concerns to retain the growing base due to the introduction of a new small trader scheme.

According to figures compiled by the Federal Board of Revenue (FBR), about 17,337 large retailers integrated with the Point of Sale (POS) network in the fiscal year 2025-26. There was an increase of 4,124 businesses or 31% in the base within one year.

The scheme had been launched in December 2019 but it largely remained dormant due to multiple issues impacting its integration with the tax system. The FBR also earns Rs1 on every shopping receipt generated through the POS and the money is used for the welfare of the tax officials.

In the last fiscal year, the FBR earned Rs871 million, which was about 17% higher than the preceding year, according to official details.

Under the POS system, a bill is generated electronically and a copy reaches FBR at that moment. The shop cannot later report a smaller figure, because the record already exists.

However, the introduction of the new small trader scheme could dent the drive to digitise the sale record of the retailers, as at least two conditions that make it binding for the retailers to register under the POS have been compromised.

The traders using the debt and credit card machines and having annual sales of over Rs80 million are required to be integrated with the FBR system. Now, the government has offered the retailers to avail the new scheme if their annual sales are up to Rs200 million. The small trader having up to Rs200 million annual sales would also be exempted from installing digital payment processing machines.

The government would charge only 1% tax from small traders on their annual sales compared to almost 35% being charged from the salaried class.

Due to one-third increase in the number of integrated retailers, the tax authorities said that the revenues collected from them also surged by 16% to Rs132 billion in the last fiscal year.

Tier-1 retailers are required to integrate all their branches, point of sale terminals with the FBR's computerised system aimed at digitising their economic transactions to collect due sales tax and income tax from them.

Over the past seven years, the FBR made multiple changes in the rules governing the POS framework in the hope to further broaden the base.

The establishment of a new threshold of withholding tax payments under section 236G and 236H also helped expand the network, said the officials. Retailers whose deductible withholding tax exceeds Rs100,000 or in certain cases Rs500,000 are required to integrate their businesses.

The FBR's focus largely remains on restaurants, textile, garments shops but the network of service providers remains large and majority of it is still outside the net. The tax authorities said that the professional services like doctors are not willing to disclose their real transactions and were resisting the integration of clinics and hospitals.

The FBR officials said that in late July, the Pakistan Medical Association refused to accept the same electronic billing requirement for private clinics, calling it bureaucratic overreach and warning that doctors may shut down health facilities across the country rather than comply. Its argument is that healthcare is a professional service, not a shop, and that treating a clinic like a retail outlet is legally wrong.

The FBR officials said that the rule was a common standard for everyone and was not aimed at any one profession. The shopkeepers and restaurateurs, who had the least organised lobby and the strongest practical case for objecting, have been inside the system for years, and their tax payments rose 78% once they joined it. The professions are still arguing about whether it was meant for them, they added.

According to the rules business such as restaurants, hotels, motels, guest houses, marriage halls, marquees, clubs, inter-city travel by road, courier services, cargo service, beauty parlours, clinics and slimming clinics, massage centres, pedicure centres, all medical service providers including dentists, hair implant surgeons, and pathological laboratories, medical diagnostic laboratories are required to integrate.

Nearly 13,000 shops and restaurants have been connected to the FBR's electronic billing system since 2019. Comparing what each of them paid in the three months before it was connected with the three months after, sales tax payments rose from Rs5.8 billion to Rs10.4 billion, said the official while underscoring the benefits of integration.

The 78% increase in tax payments was without raising rates and without raiding their shops, said the tax authorities.

The sharpest change came from restaurants. Across 698 of them, sales tax payments rose from Rs183.8 million in the quarters before joining to Rs729.4 million in the quarters after, an increase of almost 300%, they added.

One of the reasons for this increase was that people preferred paying through credit cards due to the 5% sales tax rate compared to the 18% rate for cash-payments.

Each of these restaurants was paying an average of about Rs263,000 in sales tax over three months before it joined. Afterwards the average was over Rs1 million. These are not small roadside establishments. They are large enough that the law already required them to be in the system, the tax authorities added.

As of July 2026, a total of 46,813 branches of these 17,300 businesses were on the digital invoicing system.

Behind these numbers sits a wider shift. FBR is moving the country to a system where sales are reported as they happen rather than reconciled months later, and where income tax and sales tax draw on the same live record. It is among the most ambitious documentation exercises attempted in Pakistan, and seven years of accumulated evidence now suggest it is working.

Tax authorities in other documented economies have reported gains from similar reforms, though measured differently. What distinguishes the Pakistani result is its consistency: whichever year a business joined, and whatever it sold, its declared tax went up once the record started existing with the FBR.