FBR proposes voluntary tax regime for small traders

The Federal Board of Revenue (FBR) has proposed a new simplified and voluntary income tax regime for small shopkeepers to encourage tax compliance and expand Pakistan's tax base. The draft Special Procedure for Small Shopkeepers, released on Tuesday, will remain open for public feedback before being finalized within one week.

 

Under the proposed framework, individual retailers with an annual turnover of up to PKR 200 million can choose to pay 1% of their gross annual turnover as income tax instead of filing tax returns under the standard taxation system.

 

Retailers opting for the scheme will be required to pay a minimum cash tax of PKR 25,000, even if the amount of tax already deducted at source exceeds their actual tax liability. Any excess withholding tax paid will not be refundable.

 

The scheme is entirely voluntary, allowing eligible retailers to either adopt the simplified tax regime or continue filing returns under the existing income tax laws. Registration will be available through the FBR's IRIS portal, a dedicated mobile application, or designated tax offices.

 

The proposal excludes retailers whose annual turnover exceeded PKR 200 million in any of the previous three years, owners of multiple shops, Tier-I retailers, jewellers, and professionals such as doctors, engineers, and lawyers.

 

Retailers who have already filed their 2025 tax returns may join the scheme only if their tax liability is not lower than the previous year's and they have not restructured, split, or renamed their businesses solely to qualify for the scheme.

 

To encourage participation, the FBR has proposed several incentives. Businesses registered under the scheme would generally be exempt from routine tax audits, mandatory digital invoicing, point-of-sale (POS) integration, and withholding tax obligations on purchases under Section 153 of the Income Tax Ordinance. They would also be exempt from the minimum tax provisions under Section 113, including the standard 1.25% minimum tax applicable under the regular tax regime.

 

The draft also introduces safeguards against unnecessary enforcement actions. Departmental proceedings could only be initiated after consultation with representatives of trade associations and only where authorities receive credible third-party information indicating significant economic transactions, ownership of high-value assets, or misuse of the scheme for tax avoidance.

 

The proposed tax return has been simplified and will require retailers to disclose only key financial information, including annual sales, purchases, business expenses, net profit, other income, and assets. The return will be available through the IRIS portal and mobile application in Urdu as well as regional languages.

 

To promote voluntary compliance, the FBR plans to issue participating businesses a "Green Plate" featuring a QR code, the taxpayer's name, National Tax Number (NTN), and business address. According to the proposal, FBR officials will generally not enter the premises of compliant retailers displaying the Green Plate for tax-related matters.

 

The draft also outlines penalties for retailers who neither file regular tax returns nor opt into the simplified scheme by the prescribed deadline. The proposed fines are PKR 10,000 for the first default, PKR 25,000 for the second, and PKR 50,000 for the third, with a minimum interval of one month between enforcement actions.