FBR proposes voluntary 1% turnover tax for small shopkeepers

Pakistan's Federal Board of Revenue (FBR) has proposed a simplified, voluntary tax regime for small shopkeepers with annual turnover of up to PKR 200 million, aiming to broaden the tax base by reducing compliance requirements and limiting tax audits.

The FBR published the draft Special Procedure for Small Shopkeepers under Section 99B of the Income Tax Ordinance, 2001, in the official Gazette on Wednesday and invited stakeholders to submit objections and suggestions within seven days.

If approved, the special procedure will apply to tax year 2026.

Eligibility and exclusions

Under the proposal, the scheme will be available to individuals whose primary source of income is operating a single retail shop with annual turnover not exceeding PKR 200 million.

The procedure will not apply to retailers whose annual turnover exceeded PKR 200 million in any of the previous three tax years, owners of more than one shop, Tier-1 retailers, jewellery sellers or professionals such as doctors, engineers and lawyers.

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

Voluntary tax at 1% of turnover

The proposed regime will remain voluntary, allowing eligible shopkeepers to either opt into the simplified system or continue filing regular income tax returns.

Under the draft, participating retailers will pay tax equal to 1% of gross turnover. Any withholding tax already deducted may be adjusted against the amount payable, although no refund will be issued if withholding tax exceeds the tax due.

To qualify, shopkeepers must pay a minimum of PKR 25,000 in cash when filing their income tax return, regardless of taxes already withheld. The tax payable will be the higher of the net tax due after withholding adjustments or PKR 25,000.

Limited audits and simplified filing

The FBR said shopkeepers opting into the special procedure would generally be exempt from tax audits.

Departmental proceedings may be initiated only after consultation with representatives of trade associations if the FBR receives third-party information indicating significant or unusual financial transactions, ownership of high-value assets or misuse of the scheme for tax avoidance.

Participants will file a simplified income tax return through the IRIS web portal or a dedicated mobile application, declaring sales, purchases, expenses and net profit. The return form will also allow the declaration of legitimate assets and will be available in Urdu and regional languages.

Additional exemptions and penalties

Under the proposal, eligible shopkeepers will not be required to withhold tax on purchases under Section 153 of the Income Tax Ordinance. Minimum tax provisions under Section 113, including the 1.25% minimum tax, will also not apply.

The draft also exempts qualifying retailers from installing sales tax point-of-sale (POS) systems or digital invoicing infrastructure.

Shopkeepers who neither file a regular income tax return nor opt into the special procedure by the due date would face penalties of PKR 10,000 for the first default, PKR 25,000 for the second and PKR 50,000 for the third, with at least one month between each enforcement action.

Eligible participants will also receive an FBR-issued "Green Plate" displaying a QR code, the shopkeeper's name, National Tax Number and business address. According to the draft, FBR officials will not enter shops displaying the compliant plate for tax-related matters involving bona fide participants in the scheme.