FMCG sector seeks expansion of GST Third Schedule to improve compliance

Pakistan’s fast-moving consumer goods (FMCG) sector has urged the government to expand the scope of the Third Schedule under the General Sales Tax (GST) regime, saying the move would improve tax compliance, enhance price transparency and simplify the system without raising tax rates.

According to a news report, the proposal calls for including additional essential goods, such as cooking oil, milk, dairy products, infant formula, flour, noodles, frozen foods and condiments, under the Third Schedule. While the GST rate would remain 18 per cent, the tax would be collected upfront at the manufacturing stage instead of across multiple points in the supply chain.

Industry stakeholders said more than Rs2.5 trillion worth of FMCG products, including beverages, tea, soaps and personal care items, are already covered under the Third Schedule. A key feature of the regime is the requirement to print retail prices on packaging, which is not mandatory under the standard GST framework.

Under the current system, tax collection occurs at multiple stages—from manufacturers to distributors and retailers—creating complexity and increasing the risk of underreporting. Industry representatives said practices such as transfer pricing and undocumented discounts create gaps in enforcement, while upfront taxation under the Third Schedule reduces such risks by fixing the tax base at the point of production.

The proposal comes as the government attempts to increase retailer documentation through additional taxation. Unregistered retailers are subject to a 4 per cent further tax, while non-filers face a 2.5 per cent advance income tax, resulting in a combined burden of 6.5 per cent. However, industry estimates suggest that more than 80 per cent of retailers remain undocumented.

Companies said these additional taxes have had a limited impact on documentation and, in some cases, have been absorbed by manufacturers to maintain retailer margins and ensure product availability, affecting profitability.

Stakeholders argued that expanding the Third Schedule could reduce reliance on such measures by shifting tax collection entirely to manufacturers, creating a more predictable and enforceable framework.

They also said the current system does not ensure consistent retail pricing, as price lists provided by companies are often not displayed or followed. This results in price variations and overcharging, prompting regulatory notices in some cases.

By requiring printed retail prices on packaging, the Third Schedule could standardise pricing, reduce discrepancies and improve consumer protection, according to industry representatives.