Pakistan’s successive governments have struggled for decades to bring the retail sector into the formal tax system, despite repeatedly introducing tax concessions and simplified registration procedures. Since the 1990s, several initiatives have been launched to document traders, but most have failed to deliver lasting results, raising questions about the effectiveness of the government’s latest Tax Asaan Scheme.
The recurring problem is not the absence of registration initiatives but the failure to establish a sustainable framework that encourages consistent tax compliance. Successive administrations have introduced schemes under different names without adequately addressing the structural barriers preventing traders from joining the formal economy.
This raises important questions about why previous initiatives have failed and whether the latest scheme has addressed the weaknesses that undermined earlier efforts.
Pakistan’s attempts to document small businesses date back several decades. In 1999, the Central Board of Revenue (CBR), now known as the Federal Board of Revenue (FBR), introduced the Development Tax Scheme (DTS) for small retailers.
A nationwide tax survey followed in May 2000 to identify undocumented businesses and potential taxpayers. In September that year, the CBR introduced the Retailers Enlistment Tax Rules, imposing a tax equivalent to one per cent of monthly taxable sales.
In 2004, the government introduced a simplified presumptive income tax scheme under which eligible retailers could pay 0.75 per cent of their declared turnover as a final tax.
Despite initial publicity and official support, these initiatives failed to establish a lasting system for documenting traders. Subsequent governments continued experimenting with similar arrangements, including the Voluntary Tax Compliance Scheme in 2016, a trader documentation initiative in 2019, a fixed-tax arrangement through electricity bills in 2022 and the Tajir Dost Scheme in 2024.
Organised opposition from trader associations also forced the government to retreat from some measures, while other initiatives struggled to meet their objectives.
The repeated failure of these programmes raises concerns about whether the lessons of previous attempts have been incorporated into the Tax Asaan Scheme. Without addressing the weaknesses of earlier initiatives, the latest effort risks producing similarly disappointing results.
Discussions with policymakers and analysts point to several shortcomings that could limit the effectiveness of the current scheme.
One major concern is its tax structure, which may be unattractive to small retailers. Although a one per cent levy on gross turnover may appear relatively low, it is calculated on sales rather than actual profits.
For businesses operating on narrow margins, this can translate into a substantial tax burden. Larger retailers with higher profit margins, meanwhile, may find the arrangement comparatively more favourable.
Uncertainty about the scheme’s continuation is another obstacle. The arrangement appears to cover the current year, without clear guarantees that similar concessions will remain available in subsequent years. This uncertainty may discourage traders from registering if they fear that the tax burden could increase later.
Concerns about enforcement are also affecting confidence. Some traders reportedly believe that tax professionals and lower-ranking FBR officials discourage registration by warning that entering the formal system could expose them to continued scrutiny or harassment by tax authorities.
Such perceptions, whether justified in individual cases or not, can undermine trust and reduce participation.
The scheme has also struggled to secure broad-based support from major trader associations. While some groups have backed the initiative, their support appears insufficient to generate widespread participation across the trading community.
However, the absence of formal registration does not mean traders make no tax payments. Many already pay withholding taxes through electricity bills, mobile services and certain banking transactions.
These payments, however, do not necessarily provide an accurate picture of a trader’s actual income, turnover or overall tax liability.
The latest figures indicate the scale of the challenge. Only around 1,400 traders had filed tax returns for tax year 2026 under the scheme, including approximately 150 new taxpayers. The limited response suggests that the initiative has so far attracted very few previously unregistered businesses.
The weak response highlights a broader challenge: documenting businesses in an economy where cash transactions remain widespread and reliable records of sales and purchases are often limited.
Tax authorities face difficulties verifying declared turnover when transactions are conducted primarily in cash. A more effective strategy would focus on documenting the entire supply chain, from imports and wholesale purchases to distribution and retail sales.
Electronic payments could help create verifiable transaction records, improve transparency and reduce dependence on voluntary declarations by businesses.
Encouraging consumers to adopt digital payments would also be an important part of this transition. The government could provide subsidies to banks and payment service providers to lower transaction costs for small retailers, making digital payment systems more accessible.
In September 2025, the State Bank of Pakistan announced a subsidy worth Rs3.5 billion to support merchant payments through Raast QR codes until June 2026. Similar incentives could help expand the use of digital transactions and improve documentation across the retail sector.
Tax officials have also raised concerns about the widespread use of high-denomination banknotes, particularly Rs5,000 notes, which facilitate large cash transactions. Making digital payment alternatives more affordable and convenient, while reducing reliance on cash, could improve the availability of transaction records.
After decades of unsuccessful registration drives, Pakistan needs to reconsider its approach to bringing traders into the tax system.
Repeatedly introducing schemes under new names is unlikely to deliver meaningful progress unless the underlying problems are resolved. A sustainable strategy must address tax rates, policy continuity, enforcement concerns and the lack of reliable business records.
Ultimately, documenting traders requires documenting their transactions. Reducing dependence on cash, strengthening digital payment infrastructure and building trust between businesses and tax authorities could provide a more effective path towards expanding the tax base.
Without these structural changes, the Tax Asaan Scheme risks becoming another unsuccessful attempt to formalise Pakistan’s largely undocumented retail economy.
