Retailers will pay a flat 1% tax on sales Plan to cover single store owners Minister outlines start
A trader counts Pakistani rupee notes at a currency exchange stall in Peshawar, Pakistan, December 3, 2018. REUTERS
ISLAMABAD:
The government on Friday announced a “small merchant plan” under which 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 projecting annual revenues of 50 billion rupees.
Finance Minister Muhammad Aurangzeb unveiled the plan along with Minister of State for Finance Bilal Azhar Kayani, who described the initiative as a “win-win solution” for the government and small traders.
It is the government’s second such initiative aimed at bringing traders into the tax net after an earlier ‘Tajir Dost’ scheme failed to achieve the desired results. Officials said the new program had been developed in consultation with the trading community.
According to Kayani, the scheme will apply to traders who own a single outlet with annual sales of less than Rs 200 million for the last three consecutive years. Eligible participants will pay a 1% tax on the total value of goods sold.
He said participants will also have to pay a minimum annual tax of Rs 25,000 at the time of filing a one-page simplified tax return. This payment would be in addition to any applicable withholding taxes. He added that the plan would be optional and would allow traders to opt in or continue filing standard income tax returns.
Kayani is the architect of the scheme who finalized these proposals in consultation with traders. Representatives of traders demanded that the government introduce a single-page tax return with a fixed tax rate.
Traders welcome the announcement of the scheme and the government has accepted our long-standing demand for a single-page statement in national and regional languages, said Kashiif Chaudhry, president of Tanzeem Tajraane-e-Pakistan.
Pakistan has informed the International Monetary Fund that it would raise a minimum of Rs 50 billion from the trader’s scheme.
The scheme, applicable from fiscal year 2026, will exclude Tier 1 registered suppliers, wholesalers, distributors, manufacturers and importers. It will also not apply to lawyers and doctors.
Officials said traders already filing returns for tax year 2025 would also be eligible to join the plan through a streamlined application process without additional qualification requirements.
Under the framework, registered traders would not be subject to routine tax audits, and audits would be limited to selection based on risk, economic indicators or credible information on undeclared assets. Disputes, if any, would be addressed through mediation involving trade bodies.
Small merchants have been exempt from the requirement to install machines at points of sale or issue digital invoices. This would keep a large number of companies out of the digital economy and promote the cash economy in the country.
Authorities further stated that participants who fail to comply with the plan’s conditions (including failing to file returns, concealing sales, or failing to maintain accounts) would lose plan benefits and be subject to standard penalties.
A penalty structure of Rs 10,000 for the first month, Rs 25,000 for the second month and Rs 50,000 for subsequent monthly defaults was also outlined.
The scheme also exempts participants from installing Point of Sale systems and acting as tax withholding agents. However, refunds will not be issued on tax payments nor will excess taxes be adjusted.
Almost a similar plan had been mooted in 2023 during the PDM era, but certain elements of the then government blocked the move. Revenue Mobilization and Reform Commission Chairman Ashfaq Tola had finalized the plan with the traders. But then he was brought down by the FBR.
The difference between the 2023 and 2026 scheme was that under the 2023 scheme it was proposed to collect the 1% tax at the time of supplies, but under the new scheme, traders will make payments at the time of filing their annual tax returns.
Kayani said registered traders 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 plan should not be considered a tax amnesty. “This scheme should not be construed as a tax amnesty scheme for traders,” said FBR Reforms Member Dr Hamid Ateeq Sarwar.
The salaried class, heavily taxed and crumbling under double-digit inflation, has also demanded a simple tax return with the option of paying a flat tax of 1% of their gross income.
In the last fiscal year, the salaried class paid more than Rs 600 billion in income tax.
