Author name: Web Desk

Pakistan’s fast-moving consumer goods (FMCG) sector has called on the government to expand the scope of the Third Schedule GST, arguing that the move can significantly improve price transparency, reduce tax evasion, and simplify the country’s complex taxation system without introducing any new taxes. Tax Collection Method Proposal The proposal centers on bringing more essential consumer goods under the Third Schedule GST framework. These products include cooking oil, milk, dairy items, infant formula, flour, noodles, frozen foods, and condiments. While the tax rate will remain unchanged at 18 percent, the key difference lies in how the tax is collected. Under the Third Schedule, the full tax is collected upfront at the manufacturing stage rather than across multiple stages of the supply chain. Industry stakeholders stress that this is not an additional burden on consumers or businesses but a structural reform aimed at improving efficiency and compliance. Current System At present, the standard GST system involves multiple layers of taxation, from manufacturers to distributors and retailers. This multi-stage structure increases administrative complexity and creates opportunities for underreporting and tax leakages. The Federal Board of Revenue faces challenges in monitoring compliance across such a fragmented system. Industry representatives argue that practices like transfer pricing and undocumented discounts often distort the actual tax base, leading to revenue losses for the government. In contrast, the Third Schedule GST ensures that the entire tax liability is settled at the first point of supply. This simplifies enforcement and reduces the need for extensive monitoring at later stages of distribution. Existing Coverage and Proven Benefits Currently, more than Rs2.5 trillion worth of FMCG products already fall under the Third Schedule. These include beverages, tea, soaps, and personal care items. One of the most significant features of this system is the mandatory printing of retail prices on product packaging. This requirement creates a clear reference point for both regulators and consumers. It limits price manipulation and helps ensure that consumers pay the correct amount for goods. Industry leaders believe that extending the Third Schedule GST to additional essential items will replicate these benefits across a wider segment of the market. Undocumented Retail Sector The push for reform comes at a time when the government is struggling to document the retail sector. Despite imposing additional taxes, compliance remains low. Unregistered retailers currently face a 4 percent further tax, while non-filers are subject to a 2.5 percent advance income tax. However, industry estimates suggest that more than 80 percent of retailers in Pakistan remain undocumented. This highlights the limited effectiveness of current measures aimed at broadening the tax net. Additional Taxes Create Business Challenges FMCG companies argue that these additional taxes have produced unintended consequences. Instead of improving compliance, they have increased the financial burden on businesses. Manufacturers often absorb part of the extra taxes to maintain retailer margins and ensure product availability. This reduces profitability and limits the ability of companies to adjust prices in response to market conditions. Stakeholders believe that expanding the Third Schedule GST would eliminate the need for such additional taxes. By collecting the full tax at the manufacturing stage, the system would become more predictable and easier to manage. Consumer Protection Another major advantage of the proposed reform is improved consumer protection. Under the current system, companies provide price lists to retailers, but these are often not displayed or followed. As a result, consumers frequently face overcharging and inconsistent pricing. Authorities have issued notices in several cases where retailers charged higher prices than those recommended by manufacturers. This lack of uniformity undermines consumer trust and creates instability in the market. By mandating printed retail prices on packaging, the Third Schedule GST can address these issues effectively. Consumers would have clear visibility of prices, reducing the risk of exploitation at the retail level. Transparent and Efficient Taxation Industry stakeholders maintain that expanding the Third Schedule GST offers a practical solution to multiple challenges facing Pakistan’s taxation system. It simplifies compliance, reduces evasion, enhances transparency, and protects consumers without increasing the overall tax burden.