FBR proposes voluntary tax regime for small traders

Pakistan's Federal Board of Revenue (FBR) is introducing a simplified, voluntary income tax regime aimed at bringing approximately 3.5 million small shopkeepers and traders into the tax net. This initiative seeks to broaden the country's narrow tax base by offering an attractive alternative to the current complex system.

Under the proposed "Special Procedure for Small Shopkeepers," individual retailers with an annual turnover of up to Rs200 million can opt to pay a flat tax of 1% of their gross turnover. This simplified payment method would exempt them from routine audits, withholding tax obligations, and the requirement for mandatory digital invoicing. A minimum cash tax of Rs25,000 is stipulated, though any excess withholding tax paid will not be refundable.

The scheme remains optional, allowing eligible shopkeepers to either join the simplified regime or continue with regular income tax returns. Registration will be accessible via the FBR's IRIS portal, a dedicated mobile app, or at tax offices. However, the proposal excludes retailers whose turnover exceeded Rs200 million in the past three years, those owning multiple shops, tier-I retailers, jewelers, and professionals like doctors and lawyers.

To further encourage participation, retailers opting for the scheme will generally be exempt from routine audits. Departmental proceedings will only be initiated after consultation with trade associations and upon receiving third-party information regarding significant transactions or asset ownership. Participants will also be exempt from withholding tax on purchases and will not be subject to minimum tax provisions under the normal regime. The FBR plans to issue qualifying retailers a "Green Tax Card" to recognize their compliance.