FBR Small Shopkeepers Tax Scheme Introduced to Expand Tax Base

The FBR Small Shopkeepers Tax Scheme has been officially introduced by Pakistan’s Federal Board of Revenue (FBR), offering eligible small retailers a simplified way to meet their income tax obligations. The new voluntary framework aims to encourage greater tax compliance by reducing administrative requirements while broadening the country’s relatively narrow tax base.

The scheme was notified through Income Tax SRO 1166 on Tuesday after the FBR reviewed feedback on draft procedures that had been released on July 14 for public consultation. Under the new arrangement, qualifying shopkeepers can choose to pay a fixed income tax based on turnover instead of following the standard income tax filing system.

What the New Tax Scheme Offers

The newly announced procedure is designed for individual retailers with an annual turnover of up to Rs200 million.

Instead of calculating taxable income under the regular taxation system, eligible retailers can voluntarily pay income tax equal to 1% of their annual gross turnover.

Participation in the scheme is optional. Shopkeepers who qualify can either join the simplified tax regime or continue filing income tax returns under the existing provisions of Pakistan’s Income Tax Ordinance.

Retailers interested in joining the scheme can register through the FBR’s IRIS online portal, a dedicated mobile application, or by visiting designated tax offices.

Minimum Tax Requirement Remains in Place

Although the scheme simplifies tax payments, participating retailers will still be required to pay a minimum cash tax of Rs25,000.

According to the notified procedure, this minimum payment must be made even if the retailer’s withholding taxes deducted during the year exceed the actual tax liability under the scheme.

The notification also makes it clear that any excess withholding tax already deducted will not be refundable.

Who Can Apply?

The voluntary regime is available only to individual retailers meeting the prescribed turnover limit.

However, several categories of businesses and individuals have been excluded.

The scheme does not apply to:

• Retailers whose annual turnover exceeded Rs200 million in any of the previous three tax years.
• Owners operating more than one retail shop.
• Tier-I retailers already covered under separate tax regulations.
• Jewellery businesses.
• Professionals such as doctors, engineers, lawyers and other similar service providers.

Additionally, retailers who submitted income tax returns for tax year 2025 can only opt into the scheme if their tax liability under the new arrangement is not lower than the previous year’s liability.

The FBR has also stated that businesses that split operations or changed their names solely to qualify for the simplified regime will not be eligible.

Audit Relief for Participating Retailers

One of the major incentives offered under the scheme is relief from routine tax audits.

According to the notified procedure, retailers who voluntarily join the simplified regime will generally remain outside the normal audit process.

However, tax authorities may still initiate departmental proceedings in specific circumstances.

Such action would only be considered after consultation with representatives of relevant trade associations and where authorities receive credible third-party information indicating significant economic activity, ownership of high-value assets, or suspected misuse of the scheme for tax avoidance.

This provision is intended to strike a balance between easing compliance for genuine small businesses while allowing authorities to investigate potential abuse where necessary.

Exemptions from Withholding Tax and Other Provisions

The simplified framework also provides several tax-related exemptions for participating retailers.

Businesses registered under the scheme will not be required to deduct withholding tax on purchases under Section 153 of the Income Tax Ordinance.

They will also be exempt from:

• Minimum tax requirements under Section 113.
• The 1.25% minimum tax that normally applies under Pakistan’s standard taxation framework.

In addition, participating retailers will not be subject to mandatory digital invoicing requirements under the simplified procedure.

These measures are expected to reduce compliance costs and administrative burdens for smaller businesses.

Why the Scheme Matters

Pakistan has long faced challenges in expanding its tax base, with a significant portion of the retail sector remaining outside the formal taxation system.

Successive governments and the Federal Board of Revenue have introduced various initiatives aimed at improving voluntary compliance while making tax procedures easier for small businesses.

The newly introduced scheme reflects that approach by offering incentives such as simplified taxation, audit relief and exemptions from several compliance obligations.

By reducing regulatory complexity, authorities hope that more eligible retailers will choose to register voluntarily and become part of the documented economy.

Whether the initiative succeeds will largely depend on the level of participation among small businesses and the effectiveness of its implementation.

Background

The Federal Board of Revenue has introduced several tax reforms in recent years as part of broader efforts to improve revenue collection and increase documentation of Pakistan’s economy.

The retail sector has remained one of the country’s largest but least documented segments, making it a key focus of tax policy reforms.

The FBR Small Shopkeepers Tax Scheme represents another attempt to encourage voluntary participation by offering a simplified alternative to the standard income tax regime while maintaining safeguards against misuse.

As implementation begins, eligible retailers will have the choice of joining the voluntary framework or continuing under existing tax laws.

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