CAP warns sales tax expansion will hike prices

LAHORE: The Chainstore Association of Pakistan (CAP) has voiced strong reservations about a proposal to add various non-fast-moving consumer goods (non-FMCG) products to the Third Schedule of the Sales Tax Act, 1990.

The items under consideration include everyday footwear, school bags, backpacks, wallets, and other goods classified under PCT 42.02.

According to CAP, the move would increase consumer costs by applying sales tax on estimated retail prices rather than on actual selling prices. The association warned that this taxation method could lead to higher prices for customers while creating additional challenges for documented retailers and manufacturers.

Representing compliant Tier-1 retail businesses, CAP stated that it supports efforts to formalise the economy and expand the tax base.

However, it argued that extending Third Schedule provisions to product categories where pricing varies and is largely determined by retailers would result in excessive taxation and market distortions.

Media reports suggest that the proposed changes in the Finance Bill 2026 could generate between Rs50 billion and Rs91 billion in additional revenue. CAP cautioned that such a significant increase would likely be passed on to consumers through higher prices.

The association also warned that informal traders dealing in undocumented or smuggled products could gain a competitive advantage due to lower operating costs and tax burdens.