Pakistan announces simplified tax scheme for small traders

Pakistan has introduced a simplified tax scheme for small traders and shopkeepers in the FY2026-27 federal budget.

The Federal Board of Revenue (FBR) has finalized the proposed Small Taxpayers Guidance System and is consulting stakeholders before its formal announcement, officials said.

What is Pakistan's new small traders tax scheme?

The scheme offers simplified registration, lower rates, and tax forms in Urdu, Sindhi, and Pashto for easier tax filing. The scheme aims to expand Pakistan's tax base, improve documentation of the economy, and encourage voluntary compliance.

It follows the failure of the earlier Tajir Dost Scheme for retailers.

Who is eligible for the small traders tax scheme?

The scheme is open to small traders and shopkeepers with annual turnover up to about PKR 20 million. Businesses must have operated for at least three years with established premises.

They must also be engaged in non-specialized professions. Existing taxpayers who have been filing returns before 2025 may also opt for the scheme if they meet the conditions.

Registration will be available through the FBR's IRIS portal, mobile application, and authorized tax practitioners. Participation will remain voluntary.

How will small traders be taxed under the new scheme?

Eligible taxpayers will be subject to a simplified tax regime that may offer lower tax rates than the standard system. They will maintain basic records of sales, purchases, and expenses.

Tax forms will be available in Urdu, Sindhi, and Pashto. Minister of State for Finance Bilal Azhar Kayani said the goal was to facilitate, not burden, small traders.

"The objective is to facilitate small traders rather than burden them. We are designing a simple and transparent system," Kayani said.

Will small traders face audits under the new scheme?

Audits will largely be limited to high-risk cases. These include unexplained banking transactions, significant mismatches between declared income and spending, or inconsistencies identified through cross-checking with other agencies.

"Genuine taxpayers who declare their income accurately and maintain simple records generally will not have to worry about audits," Kayani said.

Some small businesses joining the scheme may not be required to install point-of-sale (POS) systems. Withholding tax obligations and other statutory requirements may continue where applicable.

What incentives are on offer?

Compliant traders will be eligible for Active Taxpayer List (ATL) status. They will also benefit from reduced withholding tax rates and improved access to financial services.

The FBR has proposed penalties for non-compliance. These include failure to submit returns, concealment of income, or violation of scheme conditions.

The initiative forms part of the broader strategy to document the informal economy. The scheme is expected to be unveiled as part of the federal budget for FY2026-27 next week.