FBR unveils draft fixed tax scheme to bring over 3 million small retailers into tax net

The Federal Board of Revenue (FBR) has issued a draft special procedure for small shopkeepers aimed at bringing more than three million retailers into the fixed tax scheme during the current fiscal year.

The draft scheme, notified through SRO 1109(I)/2026, proposes a simplified and voluntary tax regime for eligible retailers. 

The FBR has invited objections and suggestions within seven days of the draft's publication in the official Gazette before finalising the procedure. The scheme will apply to tax year 2026.

The proposed framework will cover individuals earning most of their income from a single retail shop with annual turnover of up to Rs200 million.

However, it will not apply to retailers whose turnover exceeded Rs200 million in any of the previous three years, those owning more than one shop, Tier-1 retailers, jewellery sellers or providers of professional services such as doctors, engineers and lawyers.

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

Under the proposal, eligible shopkeepers will pay income tax at 1% of gross annual turnover. They will be allowed to adjust withholding tax already deducted against their liability, but no refund will be issued if the withheld amount exceeds the tax payable.

Every participating retailer will be required to pay at least Rs25,000 in cash with the income tax return. The final liability will be whichever is higher: the tax payable after adjusting withholding tax or Rs25,000.

Registration will be available through the FBR's IRIS web portal, a dedicated shopkeepers' mobile application or the nearest tax office.

Participants will file a simplified tax return declaring annual sales, purchases, business expenses, net profit and other income. The return will also include an asset declaration covering business capital, immovable property, bank balances, cash in hand and other assets. The FBR said the form would be available in Urdu and regional languages.

The scheme proposes significant compliance relief for participants.

Shopkeepers opting for the procedure will generally not be selected for audit. Proceedings may only be initiated, after consultation with representatives of trade associations, if the FBR receives third-party information regarding significant or unusual transactions, ownership of expensive assets or misuse of the scheme to evade taxes.

Participants will also be exempt from withholding tax obligations on purchases under Section 153 of the Income Tax Ordinance, while minimum tax provisions under Section 113, including the 1.25% tax rate, will not apply.

Eligible retailers will not be required to install sales tax point-of-sale systems or digital invoicing infrastructure.

The FBR also plans to issue every qualifying retailer a compliant shopkeeper plate, or "Green Plate", displaying a QR code, the shopkeeper's name, National Tax Number and business address.

According to the draft, the QR code will contain information on the shop's location and ownership, and no FBR officer or official will enter the premises of a bona fide shopkeeper displaying the plate for tax-related matters.

Retailers who neither file a regular income tax return nor opt for the special procedure by the due date will face penalties of Rs10,000 for the first default, Rs25,000 for the second and Rs50,000 for the third, with a minimum one-month gap between each default proceeding.

The FBR issued the draft under Section 99B of the Income Tax Ordinance, 2001, and said feedback received during the consultation period would be considered before the procedure is finalised.