ISLAMABAD: The Federal Board of Revenue (FBR) has notified a simplified and voluntary income tax regime for small shopkeepers, offering exemption from routine audit, withholding tax obligations and mandatory digital invoicing in a fresh attempt to broaden the country’s narrow tax base.

The Special Procedure for Small Shopkeepers was notified through Income Tax SRO 1166 issued on Tuesday. The draft procedures were issued earlier on July 14 to seek objections and suggestions from the public.

As per the plan, individual retailers with an annual turnover of up to Rs200 million will have the option of paying income tax equal to one per cent of their gross turnover instead of filing returns under the normal taxation regime.

However, participating retailers will have to pay a minimum cash tax of Rs25,000 even if taxes already deducted at source exceed their liability. Any excess withholding tax will not be refundable.

The scheme will remain optional, allowing eligible shopkeepers either to join the simplified regime or continue filing regular income tax returns under the existing law. Registration will be available through the FBR’s IRIS portal, a dedicated mobile application, or at tax offices.

The procedure excludes retailers whose turnover exceeded Rs200m in any of the preceding three years, owners of more than one shop, tier-I retailers, jewellers and professionals such as doctors, engineers and lawyers.

Retailers who filed tax returns for 2025 may opt for the scheme only if their liability is not lower than the previous year and they have not split or renamed their businesses to qualify.

To encourage participation, the FBR has decided that retailers opting for the scheme would generally remain outside the routine audit framework.

Departmental proceedings could only be initiated after consultation with representatives of trade associations and only where the tax authorities receive third-party information relating to significant economic transactions, ownership of expensive assets or misuse of the scheme for tax avoidance.

Moreover, participants will also be exempt from withholding tax obligations on purchases under Section 153 of the Income Tax Ordinance. The provisions relating to minimum tax under Section 113 and the 1.25pc minimum tax applicable under the normal regime will also not apply.

Published in Dawn, July 29th, 2026