PTBA Seeks Clarity On Fixed Tax Scheme Provisions

The Pakistan Tax Bar Association (PTBA) has called upon Muhammad Aurangzeb to provide detailed clarification regarding several legal, procedural, and interpretational issues arising from the proposed Fixed Tax Scheme (FTS) for small traders, noting that significant ambiguities remain prior to its intended implementation for Tax Year 2026.

In a formal communication addressed to the Finance Minister, the PTBA welcomed the initiative as a positive step towards expanding the tax base and encouraging the documentation of businesses currently operating outside the formal tax framework. However, the association emphasised that a number of provisions require authoritative clarification to ensure effective implementation and avoid future disputes.

The proposed scheme, announced by the Finance Minister on June 5, is intended to cover small traders with annual turnover not exceeding Rs200 million and includes the filing of a simplified one-page income tax return.

A principal concern raised by the association relates to the absence of statutory definitions for the terms “shopkeeper” and “small shopkeeper” within the Income Tax Ordinance, 2001. According to the PTBA, the lack of legal definitions creates uncertainty regarding whether wholesalers, retailers, distributors, dealers, and other categories of trading businesses are intended to fall within the scope of the scheme.

The association warned that an expansive interpretation could create ambiguity concerning the applicability of various provisions of the Income Tax Ordinance, including Sections 153(7)(h) and 153(7)(i), potentially resulting in inconsistent implementation and compliance challenges.

The PTBA also requested clarification regarding the duration of the scheme and whether it is intended to apply exclusively to Tax Year 2026. In addition, the association sought confirmation as to whether all provisions of the Income Tax Ordinance would become fully applicable to participating taxpayers from July 1, 2026, without any continuing relief measures, concessions, or exemptions.

The association further expressed reservations regarding the exclusion of businesses operating through point-of-sale (POS) systems and credit card transactions. According to the PTBA, such an exclusion may inadvertently discourage documented and electronic business activity while providing an advantage to cash-based businesses operating outside modern payment channels.

Under the proposed framework, eligible participants would be required to pay income tax at the rate of 1% of annual turnover after adjustment of taxes already withheld. However, a minimum tax liability would apply, equivalent to either the tax paid during Tax Year 2025 or Rs25,000, whichever amount is higher.

The PTBA observed that the proposed tax rate appears relatively high for small businesses and requested clarification regarding the distinction between the concepts of “tax payable” and “tax paid” for Tax Year 2025. The association noted that differing interpretations of these terms could significantly affect taxpayers’ financial obligations under the scheme.

The association also highlighted uncertainty regarding the continued application of Sections 236G and 236H of the Income Tax Ordinance, which govern tax collection from distributors, dealers, wholesalers, and retailers. It sought confirmation as to whether taxes collected under these provisions would remain adjustable against liabilities arising under the Fixed Tax Scheme.

In addition, the PTBA raised concerns regarding proposed penalties ranging from Rs10,000 to Rs50,000 for non-filing or non-compliance. The association questioned whether these penalties could overlap with existing penalty provisions under the Income Tax Ordinance, potentially creating issues relating to duplication of sanctions and double punishment.

The PTBA concluded by urging the government to issue comprehensive and authoritative guidance on all outstanding legal and procedural issues before implementation of the scheme, thereby ensuring certainty for taxpayers and facilitating smooth administration of the proposed tax regime.