New FBR scheme offers 1% turnover tax, simplified returns, audit relief and Green Plate recognition for eligible retailers
ISLAMABAD: Pakistan has formally enforced a special income tax procedure for small shopkeepers with an annual turnover of up to Rs200 million, introducing a simplified tax regime that offers a 1% turnover tax, exemption from routine audits and relief from several withholding tax obligations.
The Federal Board of Revenue (FBR) issued SRO 1166(I)/2026 on July 27, 2026, notifying the Special Procedure for Small Shopkeepers under Section 99B, read with Section 237 of the Income Tax Ordinance, 2001. The scheme will apply to Tax Year 2026.
Eligibility criteria
According to the notification, the scheme is available to individuals deriving income primarily from retail shops with an annual turnover of up to Rs200 million.
However, the following categories are excluded:
• Retailers whose turnover exceeded Rs200 million in any of the preceding three tax years.
• Owners of more than one retail shop.
• Tier-1 retailers.
• Jewellers.
• Professionals, including doctors, engineers and lawyers.
The special procedure applies only to income earned from the retail shop, while any other sources of income will remain subject to the normal provisions of the Income Tax Ordinance.
Optional tax regime
The FBR clarified that participation in the scheme is voluntary.
Eligible shopkeepers may register through:
• The IRIS web portal.
• The Shopkeepers’ Mobile Application.
• The nearest FBR tax office.
Participants may either opt for the simplified procedure or continue filing a regular income tax return under the existing tax regime.
Under the new procedure, tax will be charged at 1% of gross annual turnover.
Shopkeepers will be allowed to adjust withholding taxes already deducted against their tax liability. However, no refund will be available if the withholding tax exceeds the amount payable under the scheme.
To qualify, taxpayers must pay a minimum cash tax of Rs25,000 with their annual income tax return, or the tax payable after adjustment of withholding taxes, whichever is higher.
Simplified returns and audit relief
The notification provides significant compliance relief for participants.
Shopkeepers opting for the special procedure will generally not be selected for audit.
Departmental proceedings may only be initiated, in consultation with representatives of recognised trade associations, where third-party information indicates:
• Significant or unusual financial transactions.
• Acquisition of expensive assets inconsistent with declared income.
• Gross misuse or abuse of the special tax scheme.
Eligible retailers will file a simplified income tax return through the IRIS portal or the mobile application.
The return will require disclosure of:
• Annual sales.
• Purchases.
• Business expenses.
• Net profit.
• Legitimate business assets.
To improve accessibility, the simplified return form will also be available in Urdu and regional languages.
Exemptions under the scheme
The FBR has granted several tax concessions to participants.
Retailers registered under the special procedure will be:
• Exempt from withholding tax obligations under Section 153 of the Income Tax Ordinance.
• Excluded from the application of minimum tax under Section 113.
• Exempt from the 1.25% tax otherwise applicable under the Ordinance.
These concessions are intended to simplify tax compliance for small retailers while encouraging greater voluntary registration.
Penalties for non-compliance
The notification prescribes escalating penalties for eligible shopkeepers who neither file a regular income tax return nor opt into the special procedure by the prescribed due date.
The penalties are:
• Rs10,000 for the first default.
• Rs25,000 for the second default.
• Rs50,000 for the third default.
The FBR has specified that at least one month must elapse between each default proceeding before a subsequent penalty may be imposed.
Green Plate for compliant retailers
A notable feature of the scheme is the introduction of the “Green Plate” for compliant shopkeepers.
Each eligible retailer will receive a Green Plate displaying:
• An FBR-issued QR code.
• The shopkeeper’s National Tax Number (NTN).
• The shopkeeper’s name.
• The business address.
The Green Plate must be displayed prominently outside the business premises.
According to the notification, the QR code will contain information relating to the shop’s ownership and location. It further provides that no FBR officer or official shall enter the premises of a bona fide shopkeeper displaying the Green Plate in relation to tax matters, providing an additional safeguard for compliant retailers.
The special procedure forms part of the FBR’s broader strategy to expand the tax base, encourage voluntary compliance among small retailers and simplify tax administration through a more business-friendly framework.