By Staff Reporter
ISLAMABAD: Pakistan’s tax authority unveiled a draft scheme on Tuesday that would let small shopkeepers pay a flat 1% levy on turnover in exchange for freedom from routine audits and digital invoicing requirements, the latest attempt by the government to widen a tax base that has long relied on a narrow slice of compliant filers.
The Federal Board of Revenue’s proposal, published as the Draft Special Procedure for Small Shopkeepers under Statutory Regulatory Order 1109(1) 2026, targets more than three million retailers the agency wants to bring into the formal tax system during the current fiscal year. The board issued the draft under Section 99B of the Income Tax Ordinance, 2001, and opened it to public objections and suggestions for seven days, as required under Section 237(3) of the ordinance, with a final version expected within a week.
The offer is aimed at shopkeepers who have avoided formal registration or minimised reported income to sidestep the compliance burden of Pakistan’s standard tax regime — audits, point-of-sale mandates and withholding tax on purchases among them. The FBR is betting that a simpler, lower-friction option will draw them in.
How the scheme works
Individual retailers with annual turnover of up to Rs200 million could elect to pay income tax equal to 1% of gross turnover rather than filing under the normal regime, according to the draft. The scheme would apply to tax year 2026 and remains entirely optional — eligible shopkeepers can join or continue filing standard returns.
Participants would still owe a minimum cash payment of Rs25,000 alongside their return, regardless of how much tax has already been withheld at source. The final tax bill would be whichever is higher: the turnover-based liability after crediting withheld tax, or the Rs25,000 floor. Any withholding tax collected in excess of that liability would not be refunded.
The draft would also exempt participants from withholding tax obligations on purchases under Section 153 of the ordinance, as well as from the minimum tax provisions under Section 113 and the 1.25% minimum tax that otherwise applies under the normal regime. Shopkeepers taking up the offer would not need to install point-of-sale systems or other digital invoicing infrastructure — a requirement that has drawn resistance from retailers in past compliance drives.
Registration would run through the FBR’s IRIS web portal, a dedicated shopkeepers’ mobile app, or in person at tax offices. The required return itself would be pared down, asking only for annual sales, purchases, business expenses, net profit, other income and assets, with the form available in Urdu and regional languages.
Who qualifies
The scheme carves out several categories of retailers. Excluded are those whose turnover topped Rs200 million in any of the past three years, owners of more than one shop, Tier-I retailers, jewellers, and professionals such as doctors, engineers and lawyers. It would also not apply where shop income is combined with income from other sources.
Retailers who already filed returns for tax year 2025 could still opt into the new procedure, but only if their resulting tax liability is not lower than what they paid the previous year — a condition designed to prevent the scheme from becoming a discount for existing filers. The FBR also built in a guard against businesses splitting or renaming themselves purely to qualify.
Lighter enforcement, with conditions
Shopkeepers who join the scheme would generally sit outside the FBR’s routine audit framework, according to the draft, and the agency proposed that field officials would not enter the premises of compliant retailers for tax-related matters. Qualifying shopkeepers would instead receive a “Green Plate” bearing a QR code, the taxpayer’s name, National Tax Number and business address — a visible marker intended to signal compliance and, in principle, keep inspectors away.
That protection is not unconditional. The draft allows departmental proceedings to proceed after consultation with trade association representatives, but only where the FBR receives third-party information pointing to significant economic transactions, ownership of high-value assets, or misuse of the scheme to avoid tax.
For those who ignore the scheme altogether — neither filing a regular return nor opting in by the due date — the draft sets out escalating penalties: Rs10,000 for a first default, Rs25,000 for a second and Rs50,000 for a third, with proceedings spaced at least a month apart.
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