The government of Pakistan on Friday introduced a new "small trader scheme" that allows retailers to pay a fixed 1% tax on sales in exchange for exemptions from tax audits and requirements related to digital transaction systems. Officials project the scheme will generate annual revenue of Rs50 billion.
Details of the Scheme
Finance Minister Muhammad Aurangzeb unveiled the initiative alongside Minister of State for Finance Bilal Azhar Kayani, who described it as a "win-win solution" for the government and small-scale traders. This is the second attempt by the government to bring traders into the tax net, following the less successful "Tajir Dost" scheme.
The scheme applies to shopkeepers with a single outlet and annual sales below Rs200 million over the past three consecutive years. Eligible participants will pay a 1% tax on total sales value. They must also pay a minimum annual tax of Rs25,000 when filing a simplified one-page tax return, in addition to any applicable withholding taxes.
The scheme is optional; shopkeepers can choose to participate or continue filing standard income tax returns. Kayani, the architect of the scheme, finalized the proposals in consultation with traders. Kashif Chaudhry, President of Tanzeem Tajraane-e-Pakistan, welcomed the announcement, noting that the government accepted the longstanding demand for a single-page return in national and regional languages.
Key Features and Exemptions
Registered traders will not be subject to routine tax audits; audits will be limited to risk-based selection, economic indicators, or credible information about undeclared assets. Disputes will be addressed through mediation involving trader bodies. Participants are exempt from installing point-of-sale machines or issuing digital invoices, which critics say may keep many businesses outside the digital economy and promote cash transactions.
Non-compliance—such as non-filing of returns, concealment of sales, or failure to maintain accounts—will result in loss of benefits and standard penalties. A penalty structure of Rs10,000 for the first month, Rs25,000 for the second, and Rs50,000 for subsequent defaults was outlined. No refunds will be issued on tax payments, nor will excess tax be adjustable.
Comparison with Previous Attempts
A similar scheme was debated in 2023 during the PDM government but was blocked by certain elements. Ashfaq Tola, Chairman of the Reform and Revenue Mobilization Commission, had finalized the scheme with traders, but it was shot down by the FBR. The key difference is that under the 2023 proposal, the 1% tax was to be collected at the time of supplies, whereas under the new scheme, payments are made when filing annual tax returns.
Implementation and Reactions
Registered shopkeepers will display an FBR-issued plate outside their premises with business details, NTN, and a QR code. FBR officials are not allowed to enter compliant shops; violations will result in disciplinary action. Dr. Hamid Ateeq Sarwar, Member Reforms at FBR, clarified that the scheme is not a tax amnesty.
The salaried class, which paid over Rs600 billion in income tax last fiscal year, has also demanded a simple tax return with the option of a fixed 1% tax on gross income. The scheme applies from fiscal year 2026 and excludes Tier-1 registered suppliers, wholesalers, distributors, manufacturers, importers, lawyers, and doctors.
