Chartered accountants call for lower sales tax rates and wider incentives to boost documentation and expand the sales tax net.
The Institute of Chartered Accountants of Pakistan (ICAP) has expressed concern over a decline in active sales tax registrations and urged the government to reduce sales tax rates in the federal budget 2026-27 to encourage greater documentation of the economy and improve tax compliance.
In its proposals for Budget 2026-27, ICAP said the standard General Sales Tax (GST) rate of 18 percent remains excessively high and is discouraging businesses from entering the formal sales tax regime.
The institute pointed to a decline in the number of taxpayers appearing on the Active Taxpayers List (ATL) for sales tax, which fell to around 189,000 in April 2026 from approximately 210,000 in April 2025.
By contrast, income tax compliance continued to improve. More than 7.3 million taxpayers were included in the income tax ATL in April 2026, compared with over 6.7 million a year earlier.
According to ICAP, the divergent trends suggest that the current sales tax structure may be acting as a barrier to broader registration and compliance.
Lower GST Rates Proposed
The institute noted that Tier-1 retailers involved in the sale of finished fabric, locally manufactured textile products, leather goods and artificial leather articles currently qualify for a reduced sales tax rate of 15 percent, subject to integration with the Federal Board of Revenue’s Point of Sale (POS) system.
However, ICAP said many retailers remain reluctant to integrate with the POS system because of the prevailing tax burden.
To encourage greater participation in the documented economy, the institute proposed reducing the standard GST rate and further lowering the sales tax rate applicable to Tier-1 retailers.
ICAP also recommended extending the reduced sales tax regime to all retailers to incentivize wider registration and compliance.
Push for POS Integration
The accounting body emphasized that Tier-1 retailers play a critical role in documenting economic activity and improving transparency in the retail sector.
According to ICAP, strengthening retailer confidence in the tax system is essential to achieving full integration with the FBR’s POS infrastructure, which enables real-time reporting of sales transactions.
The institute argued that broader documentation of retail sales would improve transparency and support more effective tax administration.
Consumer Incentives Suggested
ICAP also proposed reviving the prize scheme for consumers making purchases from Tier-1 retailers.
The institute said such incentives could encourage customers to demand documented receipts and support wider adoption of the POS system.
Additionally, ICAP recommended introducing reduced sales tax rates for restaurant payments made through debit and credit cards, similar to incentives available under provincial sales tax regimes administered by the Sindh Revenue Board and the Islamabad Capital Territory.
Documentation to Support Revenue Growth
ICAP maintained that lower sales tax rates could ultimately support long-term revenue growth by expanding the tax base and increasing compliance.
The institute argued that improved documentation and reporting of business turnover would enhance income tax collection, helping offset part of the revenue impact from any reduction in sales tax rates.
According to ICAP, a more balanced sales tax regime would encourage voluntary compliance, promote formalization of businesses and contribute to sustainable growth in government revenues.
