Less Than 700,000 Retailers Linked to Digital Payment Systems in Pakistan

Prime Minister Shehbaz Sharif’s drive to reduce cash usage in Pakistan’s economy is facing significant resistance from the country’s vast retail sector, with fewer than 700,000 retailers currently linked to any form of digital payment, according to official data. Retailers, who are among the largest handlers of cash in the country, have been slow to adopt digital payment systems. As of September, less than 700,000 retailers nationwide were using digital payment modes, with only about 39,000 in the capital, Islamabad, reported Express Tribune. The government has set an ambitious target of connecting at least 2 million merchants to digital payment platforms by June next year. However, authorities acknowledge that resistance from the trading community could make this goal difficult to achieve. During a briefing on Monday, Prime Minister Sharif reiterated that the transition to a cashless economy is essential for Pakistan’s sustainable development. He directed officials to intensify awareness campaigns in rural areas to help phase out the traditional cash-based economy and accelerate the shift to a fully digital financial system. Minister of State for Finance Bilal Azhar Kayani has been tasked with overseeing the implementation and monitoring of the cashless economy initiative. Despite these efforts, currency in circulation has risen to 34% as of June. A recent government mini-budget proposal to increase the withholding tax on cash withdrawals to 1.5% may further encourage cash hoarding, complicating the transition to digital payments. Traders remain a major challenge for the government’s formalization efforts, consistently resisting entry into the tax net despite repeated attempts. The Pakistan Muslim League-Nawaz (PML-N)-led coalition has also softened its approach to bringing retailers into the formal economy, focusing instead on linking them to digital payment systems to monitor sales and improve tax collection. This reluctance has shifted a disproportionate tax burden onto the salaried class and the manufacturing sector. While tax authorities previously suggested that retailers paid Rs. 693 billion in income tax last fiscal year, the Federal Board of Revenue (FBR) Chairman recently clarified that the actual figure was Rs. 166 billion. In contrast, the salaried class contributed Rs. 606 billion in income tax last year, Rs. 440 billion, or 265% more than the amount paid by traders.