FBR Plans Rs150,000 Penalties as Only 100 Traders File

The Federal Board of Revenue (FBR) is preparing to issue notices carrying combined penalties of at least Rs150,000 against non-compliant retailers under existing tax laws after only 100 new traders filed returns under the government’s fixed tax scheme.

The planned enforcement comes amid a weak response to Prime Minister Shehbaz Sharif’s third retailer tax scheme in four years, which currently offers a lower first-month penalty of Rs10,000.

Sources said the FBR plans to map around 30,000 traders for enforcement purposes and initially issue between 10,000 and 15,000 notices under Section 114(4) of the Income Tax Ordinance instead of relying on the fixed tax scheme.

Under Section 114(4), tax commissioners are authorised to direct individuals to file their returns within 30 days of receiving a notice or within another period specified in the notice.

Section 182(1) imposes a minimum Rs50,000 penalty for failure to file an income tax return. However, individuals deriving at least 75% of their income from salaries face a lower minimum penalty of Rs10,000.

Traders who fail to file may also be penalised under Section 182(1AA) for not submitting wealth statements or wealth reconciliation statements. The penalty is calculated at 0.1% of taxable income per week or Rs100,000, whichever is higher.

Under the government’s scheme, retailers were offered a fixed income tax rate of 1% or a minimum payment of Rs25,000, along with exemption from audits and permission to carry out cash transactions without installing digital machines.

Despite these incentives, only 100 new retailers had filed returns by Wednesday, collectively paying Rs3.2 million as their full and final tax liability for tax year 2026, which concluded in June.

The average payment stood at Rs32,000 per retailer, exceeding the scheme’s minimum tax requirement by Rs7,000.

While 2,593 new retailers registered under the scheme, just 100 proceeded to file returns. Although total returns surpassed 1,000, around 99% were submitted by traders who were already registered within the tax system, resulting in limited additional revenue.

FBR estimates indicate that Pakistan has approximately 4.3 million traders, but only 600,000 are registered taxpayers. The scheme was intended to bring the remaining 3.7 million traders into the formal tax net.

Sources said internal differences had surfaced within the FBR over how to enforce the scheme following its poor response. Officials reportedly viewed the scheme as difficult to implement because its penalties were considered insufficient to encourage compliance.

One proposal suggested gradually increasing penalties from Rs10,000 during the first month to Rs25,000 in the second month and Rs50,000 in the third. Another proposal called for retaining the penalty structure already included in the scheme.

Tax officials maintained that joining the scheme was voluntary, but traders who failed to register and submit returns after the extended deadline could face enforcement action under the Income Tax Ordinance.

Separately, traders announced a partial strike on Thursday in protest against police cases registered over the use of plastic bags.