The government on Friday announced a “small trader scheme” under which small retailers will pay a fixed 1% tax on sales in return for exemptions from tax audits and requirements related to digital transaction systems, with officials projecting annual revenue of Rs50 billion.
Finance Minister Muhammad Aurangzeb unveiled the scheme at a press conference alongside Minister of State for Finance Bilal Azhar Kayani, who described the initiative as a “win-win solution” for the government and small-scale traders.
It is the second such initiative by the government aimed at bringing traders into the tax net after an earlier “Tajir Dost” scheme failed to deliver the desired results. Officials said the new programme had been developed in consultation with the trader community.
According to Kayani, the scheme will apply to shopkeepers owning a single outlet with annual sales below Rs200 million over the past three consecutive years. Eligible participants will pay a 1% tax on the total value of goods sold.
He said participants would also be required to pay a minimum annual tax of Rs25,000 at the time of filing a simplified one-page tax return. This payment would be in addition to any applicable withholding taxes. He added that the scheme would be optional, allowing shopkeepers either to opt in or continue filing standard income tax returns.
The scheme, applicable from the fiscal year 2026, will exclude Tier-1 registered suppliers, wholesalers, distributors, manufacturers and importers. It will also not apply to lawyers and doctors.
Officials said shopkeepers already filing returns for tax year 2025 would also be eligible to join the scheme through a simplified application process without additional qualification requirements.
Under the framework, registered traders would not be subject to routine tax audits, with audits limited to risk-based selection, economic indicators or credible information regarding undeclared assets. Disputes, if any, would be addressed through mediation involving trader bodies.
Authorities further stated that participants who fail to comply with scheme conditions – including non-filing of returns, concealment of sales or failure to maintain accounts – would lose scheme benefits and be subject to standard penalties.
A penalty structure of Rs10,000 for the first month, Rs25,000 for the second month and Rs50,000 for subsequent monthly defaults was also outlined.
The scheme also exempts participants from installing Point of Sale systems and from acting as withholding tax agents. However, no refunds will be issued on tax payments, nor will excess tax be adjustable.
Kayani said registered shopkeepers would display a Federal Board of Revenue (FBR)-issued plate outside their premises, featuring business details, NTN and a QR code. He added that FBR officials would not be allowed to enter compliant shops, and any violation by officials would result in disciplinary action.
Officials said the scheme should not be considered a tax amnesty. “This scheme should not be construed as a tax amnesty scheme for traders,” said Dr Hamid Ateeq Sarwar, Member Reforms at the FBR.
A similar scheme had been discussed in 2023 during the PDM government’s tenure, but certain elements within the then-administration reportedly blocked its implementation. The Reform and Revenue Mobilisation Commission, chaired by Ashfaq Tola, had finalised the proposal in consultation with traders; however, it was later turned down by the FBR.