FBR Proposes Fixed Tax Scheme for Small Shopkeepers

The Federal Board of Revenue (FBR) has issued a draft special tax procedure for small shopkeepers, proposing a simplified fixed tax regime aimed at bringing more than three million retailers into the formal tax system during the current fiscal year.

The proposed framework, issued through SRO 1109(I)/2026, introduces a voluntary and simplified taxation mechanism for eligible retailers. The FBR has invited stakeholders to submit objections and suggestions within seven days of the draft's publication in the official Gazette before the procedure is finalised. The scheme is proposed to apply for Tax Year 2026.

Under the draft, the regime will apply to individuals deriving the majority of their income from operating a single retail shop with an annual turnover not exceeding Rs200 million.

However, the scheme will exclude retailers whose annual turnover exceeded Rs200 million in any of the preceding three tax years, individuals operating more than one retail outlet, Tier-1 retailers, jewellery businesses, and professionals providing services such as doctors, engineers, and lawyers.

Retailers who filed income tax returns for Tax Year 2025 may also opt into the scheme, provided their tax liability under the new procedure is not lower than the previous year's payable tax and they have not divided or renamed their businesses solely to qualify.

According to the proposal, eligible retailers will pay income tax at 1% of their gross annual turnover. Any withholding tax already deducted may be adjusted against the final liability; however, no refund will be available where the amount of withholding tax exceeds the tax payable.

Each participating retailer will also be required to pay a minimum cash amount of Rs25,000 when filing the income tax return. The final tax liability will be the higher of either the adjusted income tax payable or the minimum payment of Rs25,000.

Registration under the proposed regime will be available through the FBR's IRIS portal, a dedicated shopkeepers' mobile application, or the nearest tax office.

Participants will submit a simplified tax return disclosing annual sales, purchases, business expenses, net profit, and any additional income. The return will also include an asset declaration covering business capital, immovable property, bank balances, cash holdings, and other assets. The FBR has stated that the return form will be made available in Urdu and various regional languages.

The draft also provides significant compliance relief for participating retailers. As a general rule, registered shopkeepers will not be selected for audit. Audit proceedings may only be initiated, after consultation with representatives of trade associations, where the FBR receives credible third-party information relating to significant or unusual transactions, ownership of high-value assets, or suspected misuse of the scheme for tax evasion.

In addition, participants will be exempt from withholding tax obligations under Section 153 of the Income Tax Ordinance, 2001, while the minimum tax provisions under Section 113, including the 1.25% minimum tax, will not apply.

Eligible retailers will likewise be exempt from installing sales tax point-of-sale (POS) systems and digital invoicing infrastructure.

The FBR also plans to introduce a "Green Plate" for qualifying retailers. The compliant shopkeeper plate will display a QR code, the retailer's name, National Tax Number (NTN), and business address. According to the draft, the QR code will contain details of the shop's ownership and location, and no FBR officer will enter the premises of a bona fide retailer displaying the Green Plate for tax-related matters.

Retailers who neither file a regular income tax return nor opt into the proposed special procedure by the prescribed due date will face penalties of Rs10,000 for the first default, Rs25,000 for the second, and Rs50,000 for the third, with at least a one-month interval between successive default proceedings.

The draft procedure has been issued under Section 99B of the Income Tax Ordinance, 2001, and the FBR has stated that all comments and suggestions received during the consultation period will be considered before the scheme is finalised.