Proposed voluntary regime offers 1% turnover tax, audit relief and simplified compliance for eligible retailers
ISLAMABAD: The Federal Board of Revenue (FBR) has unveiled a draft special income tax scheme for small shopkeepers, seeking to bring millions of retailers into the documented economy through a simplified, voluntary tax regime with reduced compliance requirements and greater protection from routine tax inspections.
The FBR issued SRO 1109(I)/2026, dated July 14, 2026, inviting comments from stakeholders on the proposed Special Procedure for Small Shopkeepers, which will apply to Tax Year 2026. The initiative forms part of the government’s broader strategy to expand the tax base while making tax compliance easier for small retailers.
Eligibility criteria
Under the draft rules, the scheme will be available to individuals operating retail shops with an annual turnover of up to Rs200 million.
However, the following categories will not be eligible:
• Individuals whose annual turnover exceeded Rs200 million in any of the previous three tax years;
• Owners of more than one retail shop;
• Tier-I retailers;
• Jewellery retailers; and
• Professionals providing services such as doctors, engineers and lawyers.
The scheme also excludes income earned from sources other than retail business.
Retailers who filed income tax returns for Tax Year 2025 may opt into the simplified regime, provided their tax liability is not lower than the amount paid for the previous year and they have not split or renamed their businesses solely to qualify for the scheme.
One percent turnover tax
Eligible shopkeepers will be able to register through the IRIS web portal, a dedicated mobile application or by visiting the nearest FBR tax office.
Participation in the scheme will remain voluntary, allowing retailers to either adopt the simplified procedure or continue filing returns under the normal income tax regime.
Under the proposal, income tax will be charged at 1 percent of gross annual turnover. Retailers will be permitted to adjust income tax already withheld against their tax liability. However, no refund will be available where withholding tax exceeds the amount payable under the scheme.
Minimum cash tax of Rs25,000
The draft requires participating retailers to pay a minimum cash tax of Rs25,000 with their annual return, regardless of taxes already deducted or collected at source.
Accordingly, the tax payable will be whichever is higher: the tax liability after adjustment of withholding taxes or the minimum payment of Rs25,000.
Audit protection
One of the key features of the proposed scheme is significant relief from routine tax audits.
According to the draft, retailers participating in the scheme will generally not be selected for audit.
However, the FBR may initiate departmental proceedings, in consultation with representatives of trade associations, if it receives credible third-party information regarding:
• Significant or unusual financial transactions;
• Ownership or acquisition of expensive assets; or
• Gross misuse of the simplified tax regime.
Simplified tax return
Participants will file a simplified income tax return through the IRIS portal or the dedicated mobile application.
The return will require retailers to declare total sales, purchases, expenses and net profit. It will also include a simplified mechanism for declaring legitimate assets and will be available in Urdu and regional languages to facilitate wider participation.
Exemptions from withholding tax and POS requirements
The draft provides several compliance concessions for participating retailers.
Shopkeepers registered under the scheme will not be required to deduct withholding income tax under Section 153 of the Income Tax Ordinance on purchases of goods or services.
They will also be exempt from the minimum tax provisions of Section 113, including the 1.25 percent minimum tax.
In addition, eligible retailers will not be required to install Sales Tax Point of Sale (POS) systems or digital invoicing infrastructure.
Penalties for non-compliance
The FBR has proposed a graduated penalty structure for retailers who neither file a regular income tax return nor opt into the simplified scheme.
The proposed penalties are:
• Rs10,000 for the first default;
• Rs25,000 for the second default; and
• Rs50,000 for the third default.
The draft specifies that at least one month must elapse between each default proceeding.
‘Green Plate’ for compliant retailers
To encourage voluntary compliance, the FBR plans to introduce a “Compliant Shopkeeper Plate”, commonly referred to as the Green Plate, for eligible participants.
The plate will display the retailer’s name, National Tax Number (NTN), business address and an FBR-issued QR code containing ownership and location details.
According to the proposal, FBR officials will not enter the premises of a bona fide shopkeeper displaying the Green Plate for tax-related matters, providing compliant retailers with greater protection from unnecessary inspections.
The FBR has invited trade bodies, stakeholders and members of the public to submit feedback on the draft before the special procedure is finalised and implemented.