The government will market its new “small trader scheme” as an effort to bring retailers into the tax net and generate Rs50 billion annually. A cursory look would, however, reveal that it is less a tax reform initiative and more a negotiated settlement with one of Pakistan’s most under-taxed yet politically influential constituencies. The scheme offers traders with annual sales of up to Rs200 million a simplified one per cent turnover tax on a voluntary basis. Participants will face minimal compliance requirements and will be exempt from audits, point-of-sale systems, digital invoicing and most forms of scrutiny. Existing non-filers can join under certain conditions. The government insists this is not a tax amnesty. But exempting traders from the very documentation tools — POS [point-of-sale] systems, digital invoicing — that the state claims to be expanding elsewhere makes that position hard to sustain. If the purpose is to integrate retailers into the documented economy, the scheme does the opposite. It risks entrenching the cash-based practices that have long kept retail trade outside the tax net. This follows a familiar pattern. Whenever governments attempt to broaden the tax base, trader resistance produces a compromise — a concessionary regime that falls short of genuine documentation. The Tajir Dost Scheme, introduced last year, largely failed; at one point, only a few dozen traders had reportedly joined. The new scheme is a variation of the same scheme, not a more effective alternative. The OICCI notes that the corporate sector, representing only 6pc of GDP, accounts for nearly 60-70pc of direct tax revenues, while retailers remain under taxed The scale of what is being forgone deserves emphasis. Pakistan’s retail sector is estimated to generate annual turnover in the range of Rs10 to Rs15 trillion, yet its contribution to direct tax revenues remains negligible. The Overseas Investors Chamber of Commerce & Industry’s (OICCI) tax proposal submissions to the government note that the corporate sector, representing only 6pc of GDP, accounts for nearly 60-70pc of direct tax revenues. That concentration is not a sign of corporate wealth; it is a sign of how narrow and distorted the tax base has become. The Rs50bn target attached to this scheme, even if met, would represent a fraction of what full compliance at standard rates could theoretically yield. Every scheme that keeps retailers outside the documented economy worsens that distortion. The contrast with salaried workers and corporations is too obvious. Formal-sector employees have taxes deducted automatically at source and face progressive rates that rise sharply with income. Corporations bear some of the highest effective tax rates in the region and must meet extensive reporting requirements. The OICCI has calculated that the effective burden on large corporates, once super tax, Workers Welfare Fund and Workers Profit Participation Fund contributions are included, reaches 45-46pc. For resident shareholders, the combined burden approaches 64pc, figures that place Pakistan among the most heavily taxed corporate jurisdictions in the region. A retailer turning over hundreds of millions of rupees, meanwhile, can now settle tax liabilities through a preferential regime while avoiding audits and documentation that other taxpayers cannot escape. This is not an equitable distribution of the tax burden; it is a distortion that the scheme deepens. That this sector continues to shoulder such rates while retailers negotiate preferential arrangements is the predictable result of repeatedly choosing accommodation over enforcement. The International Monetary Fund (IMF), whose conditions explicitly include broadening the tax base and reducing reliance on withholding taxes from a narrow set of documented taxpayers, has flagged the retail and wholesale sectors as critically under-taxed. Whether this scheme satisfies or contradicts its commitments with the fund is a question the government is unlikely to answer publicly, and one the IMF is unlikely to ignore when the next review comes around. The OICCI, representing the largest foreign investors operating in Pakistan, has explicitly called for all future tax exemptions and preferential treatments to pass through a transparent policy review mechanism under the proposed Tax Policy Office. The small trader scheme announced without any such review is precisely the kind of ad hoc concession that the body was designed to prevent. That the government bypassed this process, which it has itself committed to operationalising, raises questions about whether the Tax Policy Office will have any real authority or will simply be overridden whenever political costs become inconvenient. The political logic is straightforward. Traders are an important constituency for the ruling PML-N in urban Punjab. They are well-organised and capable of mobilising quickly. Mandatory documentation, digital invoicing and strict enforcement would carry real political costs. A voluntary, audit-free arrangement does not. The political costs of confronting traders are not hypothetical. When the government attempted to impose a minimum tax of Rs3,000 per shop in FY23, the then finance minister Miftah Ismail was publicly rebuked — not by the opposition, but by PML-N leader Maryam Nawaz Sharif. The message to traders, and to any future finance minister contemplating enforcement, was unambiguous. But that calculation has consequences: every concession granted to retailers increases pressure on sectors that are already fully documented and easy to tax. Revenue collection alone is not the benchmark for sound tax policy. Effective reform must broaden the tax base, improve documentation and distribute the burden more fairly. On those standards, the Fixed Tax Asaan Scheme fails. A credible alternative roadmap is not difficult to design. The tools and the blueprint are available. The OICCI, in its taxation proposals, has outlined one: a two-year programme to bring unregistered businesses into the tax net through digitisation, integration of existing databases and expansion of digital invoicing. That this framework has been formally submitted to the government and set aside in favour of a voluntary, audit-free scheme is telling. The OICCI has warned that the continued concentration of tax burden on the formal sector has already contributed to multinational companies scaling down operations or exiting Pakistan altogether. A tax policy that drives out documented, compliant investors while offering relief to undocumented ones does not just fail on fairness grounds; it actively undermines the investment base the country needs to grow its way out of fiscal stress. Published in Dawn, The Business and Finance Weekly, June 8th, 2026