PTBA raises concerns over proposed fixed tax scheme for small traders, seeks clarity 

The Pakistan Tax Bar Association (PTBA) has urged Finance Minister Muhammad Aurangzeb to clarify several legal and procedural aspects of the proposed Fixed Tax Scheme (FTS) for small traders, saying key provisions remain ambiguous ahead of its implementation for Tax Year 2026.

In a letter to the finance minister, the PTBA welcomed the scheme as a step towards broadening the tax base and encouraging documentation of businesses operating outside the formal tax system. However, it said a number of issues require clarification before the scheme becomes operational.

The scheme, announced by the finance minister on June 5, targets small traders with an annual turnover of up to Rs200 million and includes a simplified one-page income tax return.

The PTBA's primary concern relates to the absence of definitions for the terms “shopkeeper” and “small shopkeeper” in the Income Tax Ordinance, 2001. It said it remains unclear whether wholesalers, retailers, distributors, dealers and other trading businesses fall within the scope of the scheme.

The association warned that a broad interpretation could create uncertainty regarding the application of certain provisions of the Income Tax Ordinance, including Section 153(7)(h) and 153(7)(i).

The PTBA also sought clarification on whether the scheme would apply only to Tax Year 2026 and whether all provisions of the Income Tax Ordinance would fully apply to participants from July 1, 2026, without any continuing concessions or exemptions.

The association expressed concern over the exclusion of businesses using point-of-sale (POS) systems and credit card transactions, arguing that the measure could discourage documented and electronic transactions while benefiting cash-based traders.

Under the proposed scheme, participants would pay tax at 1% of turnover after adjustment of taxes already withheld, subject to a minimum tax equal to either the amount paid in Tax Year 2025 or Rs25,000, whichever is higher.

The PTBA said the proposed rate appears high and requested clarification on the distinction between “tax payable” and “tax paid” for Tax Year 2025, noting that the difference could have significant financial implications.

It also pointed out that the scheme does not clarify whether Sections 236G and 236H of the Income Tax Ordinance, relating to tax collection from distributors and retailers, would continue to apply. The association requested confirmation on whether taxes collected under these sections would remain adjustable against liabilities under the scheme.

The PTBA further raised concerns over proposed penalties ranging from Rs10,000 to Rs50,000 for non-filing, questioning whether these could overlap with existing penalties under the Income Tax Ordinance and potentially create issues of double punishment.

The association called for authoritative guidance on these matters before the scheme is implemented.