What You Need to Know?
Published: 27th July, 2026
On 27th July 2026, the Federal Board of Revenue (FBR) issued S.R.O. 1166(I)/2026, notifying a formal “Special Procedure for Small Shopkeepers” under Section 99B read with Section 237(1) of the Income Tax Ordinance, 2001. This scheme was first introduced via S.R.O. 1109(I)/2026 on 14th July 2026, and this latest notification finalizes it for Tax Year 2026.
If you run a retail shop — or advise clients who do — this is one of the most consequential compliance changes for small retailers this year. Here’s a complete breakdown of what it means, who it applies to, and how it works.
Why This Matters?
Pakistan’s retail sector has long been under-documented, and small shopkeepers have historically faced a choice between complex regular tax filing or staying outside the tax net altogether. This special procedure is FBR’s attempt to bridge that gap: a simplified, low-friction, flat-rate tax regime designed specifically for small retail businesses, in exchange for formal registration and basic reporting.
Who Can Use This Procedure?
The scheme applies to individuals earning income mainly through retail shops with annual turnover up to PKR 200 million, for Tax Year 2026.
Who is excluded?
Not every retailer qualifies. The following are explicitly carved out:
- Individuals whose turnover exceeded PKR 200 million in any one of the preceding three years
- Anyone who owns more than one shop
- Tier-1 retailers (as separately defined under tax law)
- Sellers of jewellery
- Providers of professional services — e.g., doctors, engineers, lawyers
Additionally, the procedure covers shop income only; other sources of income fall outside its scope and must be reported separately. Retailers who already filed a return for Tax Year 2025 can still opt into this scheme, provided their payable tax under it isn’t lower than what they paid in 2025 — and provided they haven’t restructured, split, or renamed their business simply to qualify.
How Registration Works?
Shopkeepers can register through:
- The IRIS web portal
- The shopkeepers’ mobile application
- In person, at their nearest tax office
It’s Optional — Not Mandatory
Importantly, this is a voluntary scheme. A shopkeeper can either:
- Opt into the Special Procedure, or
- Continue filing a regular income tax return as before.
The Tax Rate and Minimum Tax
This is the core of the scheme:
- Tax rate: 1% of gross turnover
- Shopkeepers can deduct any withholding tax already collected from their payable amount
- However, if withholding tax already collected exceeds the minimum payable under this scheme, no refund will be issued
- Minimum tax payable: PKR 25,000 in cash, filed along with the return, regardless of any tax already withheld or collected at source
In short: the shopkeeper pays whichever is higher — 1% of turnover (net of withholding) or PKR 25,000.
Audit Protection
One of the most attractive features of this scheme is built-in audit relief. Shopkeepers who opt in are generally not subject to audit. FBR can only initiate departmental proceedings in consultation with trade association representatives, and only in specific circumstances involving third-party information about:
- Significant or unusual economic transactions
- Acquisition or ownership of expensive assets
- Gross misuse of the special procedure to avoid tax
This gives genuine small shopkeepers a much lower-risk environment for compliance compared to the regular tax regime.
Simplified Return Filing (Annex-I)
Instead of a full income tax return, shopkeepers file a simplified prescribed return (Annex-I) via the IRIS portal or mobile app. It requires:
- Total sales
- Total purchases
- Other business expenses
- Net profit
- A basic declaration of legitimate assets (business capital, non-movable property, cash in bank/hand, other assets)
The form will be available in Urdu and regional languages, making it far more accessible than standard tax filing documentation.
Relief from Withholding and Minimum Tax Provisions
Shopkeepers under this scheme are:
- Not required to withhold tax on purchases of goods/services under Section 153 of the Income Tax Ordinance
- Exempt from the standard minimum tax provisions under Section 113
Exempt from the 1.25% minimum tax rate that would otherwise apply
Penalties for Non-Compliance
If a shopkeeper neither files a regular return nor opts into the special procedure by the due date, escalating default surcharges apply:
| Default | Penalty |
| First default | PKR 10,000 |
| Second default | PKR 25,000 |
| Third default | PKR 50,000 |
There must be at least a one-month gap between each round of default proceedings, giving shopkeepers a reasonable window to comply before penalties escalate.
No POS or Digital Invoicing Requirement
Eligible, bona fide shopkeepers under this scheme are exempt from installing a sales tax POS system or digital invoicing infrastructure — a significant relief for small retailers who would otherwise face real operational and cost burdens implementing such systems.
Imputable Income Benefit
Shopkeepers opting into this procedure can claim credit for imputable income based on the tax they’ve paid, which can help support and justify their personal expenses and asset accumulation when questioned about wealth sources — an important protection against unexplained-income scrutiny.
The “Green Plate” — Compliant Shopkeeper Recognition
Perhaps the most novel feature: every qualifying, opted-in shopkeeper will be issued a “Compliant Shopkeeper Plate” (Green Plate). This plate will display:
- An FBR-specified QR code (containing shop location and ownership details)
- The shopkeeper’s name and NTN
- The shop’s address
It must be prominently displayed outside the shop. Crucially, no FBR officer or official may enter the shop in respect of tax matters while this plate is displayed — offering meaningful protection from arbitrary field visits and harassment, a long-standing complaint among small traders.
Our Take
This scheme reflects a broader documentation strategy: trade compliance in exchange for simplicity, lower rates, and protection from audit and enforcement overreach. For genuinely small, single-shop retailers, the numbers are fairly compelling — a flat 1% rate, a modest minimum tax of PKR 25,000, no POS/digital invoicing burden, and real audit protection.
That said, shopkeepers should carefully assess:
- Whether the 1% turnover-based tax is actually lower than what they’d pay filing a regular return based on net profit margins
- Whether they’ve already filed for the Tax Year 2025 and what the “not lower than 2025” comparison means for their specific numbers
- Whether they might inadvertently fall into an excluded category (e.g., Tier-1 retailer classification)
If you run a retail business and are unsure whether this scheme benefits you, or need help with registration and return filing under this special procedure, get in touch with our team — we can walk you through the numbers and help you make the right call before the filing deadline.