Small Shopkeepers Get Massive Relief Under FBR's New 1% Tax Scheme

ISLAMABAD: The Federal Board of Revenue (FBR) has introduced a simplified tax scheme allowing eligible shopkeepers with annual turnover below Rs200 million to pay a flat 1% tax on their total turnover.

The notification exempts the qualifying retailers from the income tax slab system with a simple flat tax rate, which means no calculations and deductions would be made. The FBR has yet to disclose the exact number of qualifying shopkeepers from the notification.

FBR 1% Tax Scheme

Those shopkeepers failing to file tax returns within the given period or opting out of this scheme would have to pay a penalty of between Rs10,000 and Rs50,000 as per the notification.The FBR did not specify a grace period beyond the stated deadline.

Small retailers have historically remained outside Pakistan's formal tax net. Tax practitioners attribute this to the compliance burden associated with standard filing requirements, including bookkeeping obligations and exposure to audits, which many small traders have long avoided by operating on a cash basis.

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Under the new scheme, a shopkeeper with an annual turnover of Rs1 crore would owe Rs1 lakh in tax, a considerably lower liability than what standard slabs could impose depending on applicable deductions and business category. Tax officials say the flat-rate structure is intended to lower the barrier to entry into the documented economy.

The scheme's rollout coincides with continuing engagement between Islamabad and the International Monetary Fund over fiscal targets, which have repeatedly included commitments to expand the tax base among undocumented retailers. Analysts say a simplified, low-friction scheme could help the FBR demonstrate progress on documentation without the resistance that accompanied earlier retail taxation measures.

The notification does not specify how the FBR intends to verify shopkeepers' declared turnover figures, raising questions among tax analysts about whether the absence of a verification mechanism could shift under-reporting from income to turnover. Traders' associations, which opposed previous retail tax initiatives, have not yet issued a formal response to the scheme.

Enforcement of the penalty provisions after the deadline will determine whether the scheme succeeds in bringing new shopkeepers into the tax net or is treated as another notification with limited follow-through, tax officials familiar with past retail tax measures said.