Retailers must pay a fixed 1% tax on sales Scheme to cover shop owners who own a single business Minister describes the initiative
A trader counts Pakistani rupee notes at a currency exchange booth in Peshawar, Pakistan December 3, 2018. REUTERS
ISLAMABAD:
The government on Friday announced a “retailer scheme” where retailers will pay a flat 1% tax on sales in exchange for exemptions from tax audits and requirements related to digital transaction systems, with officials expecting an annual turnover of Rs50 billion.
Finance Minister Muhammad Aurangzeb unveiled the scheme along with Finance Minister Bilal Azhar Kayani, who described the initiative as a “win-win solution” for the government and small 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 program had been developed in consultation with the business community.
According to Kayani, the scheme will apply to shopkeepers who own a single business with annual sales below Rs200 million over the past three consecutive years. Eligible participants pay a tax of 1% of the total value of goods sold.
He said participants would also be required to pay a minimum tax of Rs25,000 at the time of filing a simplified one-page tax return. This payment is in addition to any applicable withholding tax. He added that the scheme would be optional, allowing shopkeepers to either sign up or continue to file standard income tax returns.
Kayani is the architect behind the scheme who finalized these proposals in consultation with the traders. The representatives of business operators had demanded that the government introduce a single-page tax return with a fixed income tax rate.
Traders welcome the announcement of the scheme and the government has accepted our long-standing demand for a single-page return in national and regional languages, said Kashiif Chaudhry, the president of Tanzeem Tajraane-e-Pakistan.
Pakistan has informed the International Monetary Fund that it will raise at least Rs 50 billion. from the trader’s scheme.
The scheme, applicable from the financial year 2026, will exclude Tier-1 registered suppliers, wholesalers, distributors, manufacturers and importers. It will not apply to lawyers and doctors either.
Officials said shopkeepers already filing returns for the 2025 tax year would also be eligible to participate in the scheme through a simplified application process with no additional qualification requirements.
Under the framework, registered traders will not be subject to routine tax audits, with audits limited to risk-based selection, financial indicators or credible information on unreported assets. Any disputes will be dealt with through mediation involving trade bodies.
Small businesses have been exempted from the requirement to install vending machines or issue digital invoices. This would keep a large number of companies out of the digital economy and will promote the cash economy in the country.
The authorities further stated that participants who do not comply with the terms of the scheme – including failure to file returns, concealment of sales or missing accounts – would lose scheme benefits and be subject to standard fines.
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 agents. However, refunds of tax payments will not be issued, and excess tax will not be able to be adjusted either.
An almost similar arrangement had been discussed in 2023 during the PDM era, but certain elements in the then government blocked the move. Reforms and Revenue Mobilization Commission Chairman Ashfaq Tola had finalized the scheme with the traders. But it was then shot down by the FBR.
The difference between the 2023 and 2026 schemes was that under the 2023 scheme the 1% tax was proposed to be collected at the time of supply, but under the new scheme traders will make payments at the time of filing their annual tax returns.
Kayani said registered shopkeepers would display a plate issued by the Federal Board of Revenue (FBR) outside their premises, with 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 seen as a tax amnesty scheme for traders,” said Dr. Hamid Ateeq Sarwar, Member Reforms at FBR.
The wage earner class, heavily taxed and crumbling under double-digit inflation, has also demanded simple tax returns with the option of paying a flat 1% tax on their gross income.
In the last financial year, the salaried class paid over Rs 600 billion. in income tax.
