Overview of the Special Tax Procedure

On July 27, 2026, the Federal Board of Revenue issued S.R.O. 1166(I)/2026 under Section 99B of the Income Tax Ordinance, 2001. This formal notification follows the earlier draft S.R.O. 1109(I)/2026 and establishes an optional, streamlined income tax framework designed specifically for small retail traders for Tax Year 2026.

Tax Calculation and Financial Mechanics

Under this special mechanism, eligible traders pay a fixed tax rate set at 1 percent of their gross turnover. Any advance withholding tax paid on business transactions can be offset against the calculated tax liability; however, no refunds are granted if total withholding exceeds the final tax owed. Participants must remit a minimum cash tax of PKR 25,000 when filing. Ultimately, the payable tax corresponds to either PKR 25,000 or the net tax due after adjustments, whichever figure is higher.

Key Exemptions and Operational Benefits

To reduce compliance burdens, participating shopkeepers are granted several statutory exemptions. These include relief from routine tax audits (barring instances where third-party information points to significant tax evasion), immunity from mandatory Point of Sale system integration, exemption from digital invoicing requirements, and exemption from withholding tax on purchases. Enrolled businesses will also be issued QR-coded Green Plates for display at their retail locations.

Eligibility Criteria and Exclusions

This regime is available strictly to individual retailers who run a single retail outlet with annual turnover not exceeding PKR 200 million. Several categories of taxpayers are expressly excluded from the scheme, including owners of multiple shops, Tier-1 retailers, jewellery vendors, and professional service providers such as lawyers, engineers, and doctors. Additionally, any merchant whose turnover exceeded PKR 200 million in any of the preceding three tax years cannot participate.

Scope and Registration Steps

The simplified provisions cover only retail shop earnings for Tax Year 2026. Retailers who derive income from other non-shop or business sources must fulfill standard filing requirements under regular income tax provisions for those distinct income streams. Small merchants seeking to take advantage of this voluntary scheme can register through the FBR IRIS portal, the dedicated Shopkeepers' Mobile Application, or by visiting a local tax office, where they can submit a simplified one-page return alongside the minimum cash tax payment.