Pakistan Small Retailer Tax 2026: Rates, Rules & Steps

Introduction

If you run a small shop in Pakistan, the Federal Board of Revenue (FBR) now offers you a simpler way to meet your income tax obligations. It is called the Special Procedure for Small Shopkeepers. It replaces expense-by-expense tax calculations with a flat percentage of your sales, a one-page return and, for eligible shops, a lighter audit and invoicing burden.

Timing matters. The return deadline for Tax Year 2026 is 15 October 2026, which is today at the time of writing. Penalties apply after that date, so check the FBR website for any later notice before you rely on this page.

This guide explains who qualifies, how the tax is calculated (with worked examples), what the scheme does and does not change, how to register and file, and what to do if you miss the date. Every legal and numerical claim is tied to the FBR notification or to named news sources, and our own interpretation is labelled as such.

Quick Answer

Pakistan's small retailer tax for Tax Year 2026 is an optional FBR scheme under Section 99B and S.R.O. 1166(I)/2026. Eligible individual shopkeepers with one shop and turnover up to Rs 200 million pay 1% of gross turnover, with a Rs 25,000 minimum paid in cash, instead of filing a regular return.

• Rate: 1% of gross turnover, less withholding tax already deducted.
• Minimum: Rs 25,000 in cash with the return, whatever tax was withheld.
• Eligibility: Individuals earning mainly from retail shops, turnover up to Rs 200 million, one shop only.
• Filing: A simplified return on the IRIS portal or the FBR shopkeepers' app, or with help at a tax office.
• Deadline: 15 October 2026 for Tax Year 2026.

What Is the Small Shopkeeper Tax Scheme?

The scheme is a voluntary fixed-tax procedure for small retailers. Instead of working out taxable profit after expenses, an eligible shopkeeper pays a percentage of total sales. The FBR's own officials describe the idea as "One Page, One Return, One Percent", according to Dawn's report of an FBR briefing at the Lahore Chamber of Commerce and Industry.

Legal basis and timeline

The scheme sits in the Income Tax Ordinance, 2001. The FBR made it under Section 99B, read with Section 237, through S.R.O. 1166(I)/2026, issued on 27 July 2026. Before that, the FBR published a draft as S.R.O. 1109(I)/2026 in July 2026 for public comment, as Section 237(3) requires.

Key dates, from the notification and news reports:

• 14 July 2026: Draft S.R.O. 1109(I)/2026 published.
• 27 July 2026: Final S.R.O. 1166(I)/2026 issued.
• 19 August 2026: The FBR launched its dedicated shopkeepers' mobile app, reported under the name Asaan Tajir.
• 1 October 2026: The FBR extended the Tax Year 2026 return date from 30 September to 15 October under Section 214A.

Why the FBR introduced it

Many small shops sit outside the tax system. Minister of State for Finance Bilal Azhar Kayani said in early October that around 3.7 million retailers remain outside the tax net. The government's stated aim is to bring them in through a process that is simple and less intrusive than the normal return.

This is not the first attempt to tax the sector. For a different approach aimed at larger outlets, see our guide to FBR POS integration for Tier-1 retailers.

Who Is Eligible?

The notification sets out a short list of conditions and a short list of exclusions. Read both before you decide.

Eligibility checklist

You can use the special procedure if all of these apply:

1. You are an individual (not a company).
2. You earn income mainly through retail shops.
3. Your annual turnover is up to Rs 200 million.
4. You are claiming the procedure for shop income only.
5. You do not fall into any exclusion below.

Who is excluded

The procedure does not apply to:

• Individuals whose turnover exceeded Rs 200 million in any one of the preceding three years.
• Those who own more than one shop.
• Tier-1 retailers.
• Sellers of jewellery.
• Providers of professional services, such as doctors, engineers and lawyers.

Small Shopkeeper Scheme vs Tier-1 Retailers

Tier-1 retailers are excluded from the special procedure, so the first practical question is which category your shop falls into. The notification does not set out the Tier-1 criteria. Those come from separate FBR rules, so do not assume your category from shop size alone. Our guide to FBR POS integration for Tier-1 retailers explains how that category works.

Existing filers and the Tax Year 2025 condition

If you already filed a return for Tax Year 2025, you may still use the special procedure. The notification adds two conditions: your payable tax must not be lower than in 2025, and you must not have split up or renamed your business to qualify.

In practice, this stops a shop that paid more last year from paying less simply by changing route. Keep last year's return and payment records to hand when you compare.

Grey areas (our interpretation)

The notification does not answer every real-life case. The points below are our reading, not FBR guidance, so confirm them before filing:

• Wholesaler-cum-retailer: The text says "mainly through retail shops". A business with substantial wholesale sales may not fit.
• Partnerships and companies: The scheme speaks of individuals, so an AOP or private limited company does not appear to be covered. Our guide on the difference between a sole proprietor and a company explains why structure matters.
• Other income: The scheme covers shop income only. The return form has a field for other income, so ask an adviser how that income is taxed.

If you do not yet have a National Tax Number, read our step-by-step NTN registration guide first.

Which Types of Shops Does the Scheme Cover?

The notification speaks of individuals earning income mainly through retail shops. It names exclusions only for jewellery sellers and professional service providers, and it does not list the trades that are included. Our reading is that ordinary single-shop retail trades, such as kiryana and general stores, grocery shops, clothing, footwear, hardware, stationery and mobile accessories shops, can fall within the scheme if every other condition is met. This is interpretation, so confirm before filing.

Some businesses are not addressed at all. Restaurants, online-only sellers and hawkers do not appear in the text, so ask an adviser before assuming you qualify. If you sell online, our guide to e-commerce tax in Pakistan covers the separate rules for that activity.

How the Tax Is Calculated

The basic rule

Tax is charged at 1% of gross turnover. Gross turnover means total sales, not profit. The notification says tax payable, after deducting withholding tax, or Rs 25,000, whichever is higher, is the amount payable.

That makes the Rs 25,000 minimum a real floor. A very small shop with sales below Rs 2.5 million pays more than 1% in effect.

Worked examples

The table applies the rules in S.R.O. 1166(I)/2026 to sample turnover figures. The withholding amounts are hypothetical, chosen to show how the adjustment works.

The figures are simple arithmetic from the stated rules. Your own result depends on your declared turnover and the withholding tax actually deducted from you.

Worked Example for a Kiryana Store

The figures below are hypothetical and only show how the formula works. They are not FBR data.

Imagine an individual who owns one kiryana store. Over the year the shop records Rs 12 million in sales, Rs 9.5 million in purchases and Rs 1.2 million in other expenses, leaving a net profit of Rs 1.3 million. Withholding tax of Rs 36,000 was deducted during the year.

• Step 1: 1% of Rs 12 million is Rs 120,000.
• Step 2: Deduct the Rs 36,000 already withheld. The balance is Rs 84,000.
• Step 3: Compare with the Rs 25,000 minimum. Rs 84,000 is higher, so Rs 84,000 is payable with the return.

Notice what the formula does. Because tax is charged on sales, the same Rs 120,000 liability applies whether the shop earned Rs 1.3 million or Rs 500,000 in profit. That is why comparing against a regular return matters for shops with thin margins. The regular-return figure depends on the rates that apply to your taxable income, which our individual income tax rates guide explains.

Withholding tax adjustment and the no-refund rule

You may deduct income tax already withheld from the amount payable. However, the notification says that if the withholding tax collected is higher than the minimum tax payable under the procedure, no refund is issued.

So do not assume excess withholding comes back. Collect your withholding statements and certificates before filing. Our FBR withholding tax rate chart for 2026-27 shows which deductions commonly apply to businesses.

What no longer applies to you

For shopkeepers under the procedure, the notification says:

• You do not have to withhold tax on purchases under Section 153.
• The minimum tax under Section 113 does not apply.
• Tax at the rate of 1.25% does not apply.

To see how this differs from the usual route, read our comparison of final and normal tax regimes in Pakistan.

Benefits and Limits of the Scheme

What you gain

• Generally no audit. Shopkeepers opting in are generally not subject to audit. The FBR may start proceedings only in consultation with trade association representatives, and only on third-party information about unusual transactions, expensive assets or gross misuse of the procedure.
• No POS or digital invoicing. Eligible bona fide shopkeepers need not install a sales tax POS system or digital invoicing. See our guide to FBR digital invoicing for what other businesses face.
• Green Plate. Each qualifying shopkeeper gets a plate with an FBR QR code, the shopkeeper's name, NTN and address. The notification says no FBR officer shall enter the shop on tax matters while the plate is displayed. FBR officials have described this as generally applying unless a major anomaly is identified.
• Imputable income. You can take credit for imputable income based on tax paid, which helps support personal expenses and the growth of assets.
• A form in your language. The return is available in Urdu and regional languages.

What it does not do

• It is not mandatory, but ignoring the system carries penalties (see the deadline section).
• It does not cover other income, only shop income.
• It does not give refunds of excess withholding.
• It does not remove your duty to tell the truth. Misuse can trigger proceedings.
• It covers Tax Year 2026 only under the rules now notified.

Scheme vs Regular Income Tax Return

The scheme is optional, so the real choice is between it and a normal return. The table compares the two on the points the notification addresses.

Which is better? It depends on your margins. A shop with thin profit and high sales may pay less under a normal return, and a shop with strong profit and poor records may find 1% simpler. This is a general observation, not a recommendation, so compare both on your own numbers. Our guide on how small businesses can file income tax in Pakistan explains the normal route, and our individual income tax rates guide covers the rates that apply to taxable income.

Should You Opt In? A Simple Decision Guide

Work through these questions in order. Questions 1 to 3 come from the notification. Questions 4 to 6 are our practical reading, not FBR guidance.

1. Do you own more than one shop, sell jewellery, provide professional services or operate as a Tier-1 retailer? If yes, you are excluded and need a regular return.
2. Did your turnover exceed Rs 200 million in any of the last three years? If yes, you are excluded.
3. Did you file a Tax Year 2025 return? If yes, you can still opt in, but only if your payable tax is not lower than in 2025 and you have not split up or renamed your business.
4. Do you have significant income outside the shop? The scheme covers shop income only, so that income needs separate treatment.
5. Are your profit margins thin and your records strong? Compare against a regular return, because tax on sales can exceed tax on profit.
6. Are your records weak and you want a short, simple return? The scheme may suit you, but you must still declare sales and assets accurately.

To compare properly, read our guides on filing income tax as a small business and the difference between final and normal tax regimes.

How to Register and File, Step by Step

Three ways to register

The notification allows three routes:

Documents and information to prepare

The Annex-I return asks for the details below. Gather them before you start:

• Your name, ID card number, business name and business address.
• Nature of business and the type of goods bought and sold.
• Annual sales and annual purchases of goods.
• Business expenses and net profit.
• Other sources of income, if any.
• Withholding tax already paid.
• Business capital, non-movable property, cash in bank, cash in hand and total assets.

For a full checklist of registration papers, see our documents required for NTN registration.

Filing steps

1. Confirm you qualify using the checklist and exclusions above.
2. Get or confirm your NTN. Sole proprietors can read our guide to registering a sole proprietorship.
3. Pick your channel: IRIS, the app or a tax office.
4. Complete the simplified return, declaring total sales, total purchases, other expenses and net profit, plus your assets.
5. Calculate your tax: 1% of turnover, less withholding, subject to the Rs 25,000 cash minimum.
6. Pay through a PSID. Our guide to generating and paying an FBR PSID and our walkthrough on paying income tax online cover the payment itself.
7. Submit and save the acknowledgement and your payment receipt.
8. Check your status on the Active Taxpayer List.

If the portal or app does not work

Technical faults are common on deadline days. Try these in order:

• Retry later in the day, and screenshot any error message.
• Read our guides on IRIS login problems and recovering a forgotten IRIS password.
• Visit your nearest tax office, which the scheme expressly allows.
• Use the FBR helpline and WhatsApp facility that the Lahore chief commissioner said had been set up, as reported by Dawn.

Deadline and Penalties

The return date for Tax Year 2026 is 15 October 2026, after the FBR's extension from 30 September.

Under the notification, a shopkeeper who neither files a regular return nor opts for the special procedure by the due date faces these penalties:

• Rs 10,000 on the first default.
• Rs 25,000 on the second default.
• Rs 50,000 on the third default.

There must be a gap of at least one month between each default proceeding. Officials have described the sequence as first, second and third month, as the Minister of State for Finance explained. The FBR has also said it will map markets and shops so it can brief retailers and follow up.

Take-up has been slow so far. Dawn reported that 10,338 shops had registered, including 2,337 new entrants, but only 787 had filed. These counts are from the start of October and will have changed.

If you miss the date, act quickly rather than waiting for a notice. For general penalty rules, see our guide to avoiding late filing penalties and our Pakistan tax filing deadline page.

Sales Tax and Other Obligations

S.R.O. 1166(I)/2026 is an income tax notification. The text we reviewed does not address sales tax registration or returns, so treat sales tax as a separate question.

Whether you must register for sales tax depends on what you sell and how your business is structured. Start with our explainer on what sales tax is in Pakistan, then check the sales tax registration process if you may be affected.

If you are not on the Active Taxpayer List, the practical consequences can be significant. Our guide to late filer, non-filer and active filer status explains them.

Records You Should Keep

Audit protection is not permission to be casual. The FBR can still act on third-party information, so a clean paper trail protects you.

• A daily sales record and a purchase register.
• Supplier bills and payment evidence.
• Bank statements and cash records for the shop.
• Withholding tax statements and certificates.
• A simple list of shop assets and their approximate values.

Keep business and personal money separate where you can. Our guide to small business accounting in Pakistan shows a workable setup for a small shop.

Common Mistakes to Avoid

• Waiting for the last day. Portals and apps slow down near deadlines.
• Under-declaring sales. Third-party data on bank flows or assets can contradict your return and trigger proceedings.
• Joining when excluded. Owning a second shop or selling jewellery rules you out.
• Splitting or renaming the business. The notification names this as a reason existing filers cannot use the scheme.
• Expecting a refund of excess withholding tax.
• Forgetting sales tax, which this notification does not cover.
• Skipping the assets section. The form asks for assets, and incomplete declarations cause problems later.
• Not saving the acknowledgement. Keep it with your payment receipt.

If you filed with an error, our guides on correcting mistakes in an FBR income tax return explain the options.

Expert Tips

• Run both numbers. Estimate tax under the scheme and under a normal return before choosing.
• Check last year first. If you filed for Tax Year 2025, confirm that your payable tax is not lower than it was.
• Use the cash minimum correctly. Pay the Rs 25,000 in cash even when withholding is high.
• Treat the plate as protection, not a loophole. It sets out how FBR officers should approach you, but it does not replace honest declarations.
• Respond to notices promptly. Our guides on handling FBR tax notices and responding to audit notices help if one arrives.

Latest Developments and What to Watch

On 9 October 2026, the Finance Minister said the scheme should not be viewed as a one-year arrangement limited to 2026. That is a statement of intent. The notified rules still cover Tax Year 2026 only, so any future year would need fresh FBR rules.

Watch for three things:

• Any further change to the Tax Year 2026 deadline.
• A new notification covering later tax years.
• Changes to how existing filers use the procedure.

For wider context, see our summary of the top tax changes in Pakistan's Budget 2026-27 and our overview of tax compliance in Pakistan in 2026. Always confirm the current position on the FBR website before acting.

Key Terms Explained

Add to: main article as a new H2 called 'Key Terms Explained', placed directly before 'Frequently Asked Questions'.

• Gross turnover: Total sales for the year, before deducting purchases or expenses. The scheme charges 1% of this figure.
• Taxable profit: Income after allowable expenses. A regular return is based on this, not on sales.
• Withholding tax: Tax deducted or collected from you at source by another party. Under the scheme it can be deducted from your payable amount, but excess is not refunded. See our withholding tax rate chart.
• Minimum tax: The Rs 25,000 you must pay in cash with the return, whatever tax was withheld.
• Section 99B: The provision of the Income Tax Ordinance, 2001 under which the FBR made this special procedure.
• S.R.O.: A Statutory Regulatory Order, the form of government notification used to issue the rules.
• Annex-I: The simplified return form shopkeepers fill in under the scheme.
• Imputable income: Income credited to you, based on the tax you pay, to help support personal expenses and the growth of assets.
• Green Plate: The FBR shopkeeper plate with a QR code, your name, NTN and address, displayed outside the shop.
• NTN: Your National Tax Number. See our guide to NTN registration and how to verify an NTN online.
• Active Taxpayer List (ATL): The FBR list used to confirm filer status. See how to check the ATL.

Frequently Asked Questions

What is the small retailer tax scheme in Pakistan?

It is an optional FBR procedure, notified as S.R.O. 1166(I)/2026 under Section 99B, that taxes eligible shopkeepers at 1% of gross turnover for Tax Year 2026.

What is the minimum tax under the scheme?

Rs 25,000, paid in cash with the return, regardless of tax already deducted or collected at source.

Who qualifies?

Individuals earning mainly from retail shops with annual turnover up to Rs 200 million, who own one shop and are not otherwise excluded.

Who is excluded?

Owners of more than one shop, Tier-1 retailers, jewellery sellers and professional service providers, plus anyone whose turnover exceeded Rs 200 million in any of the previous three years.

Is the scheme compulsory?

No. You may pay under it or file a regular return. However, penalties apply if you do neither by the due date.

Is withholding tax deducted from my payable amount?

Yes, you can deduct it. But the Rs 25,000 cash minimum still applies, and excess withholding is not refunded.

Do I need a POS system?

Not if you are an eligible bona fide shopkeeper under the special procedure.

Can I use the scheme if I filed a return for Tax Year 2025?

Yes, if your payable tax is not lower than in 2025 and you have not split up or renamed your business.

How do I register?

Through the IRIS portal, the FBR shopkeepers' mobile app, or your nearest tax office.

What is the deadline and the penalty for missing it?

The deadline is 15 October 2026. The penalties are Rs 10,000, then Rs 25,000, then Rs 50,000 on successive defaults.

Does the scheme cover sales tax?

The notification is an income tax instrument and does not address sales tax. Check your sales tax position separately.

Can I own two shops and still use the scheme?

No. Owners of more than one shop are excluded under the notification.

Can I switch to a regular return later?

The notification says the procedure is optional and you may either pay under it or file a regular return. It does not explain switching after you have filed, so take advice before submitting. Our guide to revised returns and rectification explains how corrections work in general.

What happens if I do not register or file?

A shopkeeper who neither files a regular return nor opts for the procedure by the due date faces penalties of Rs 10,000, then Rs 25,000, then Rs 50,000, with at least a month between each default proceeding.

Do I need a separate NTN for my shop?

The notification refers to the shopkeeper's NTN on the Green Plate and does not describe a separate NTN for the shop. Since only one shop is allowed, use your own NTN. If you do not have one, follow our NTN registration guide.

How do I confirm my registration worked?

Check your account on IRIS or the app, keep the filing acknowledgement and payment receipt, and verify your status on the Active Taxpayer List.

Can the FBR still contact me after I join?

Yes, in limited cases. Proceedings may start only on third-party information about significant or unusual transactions, ownership of expensive assets or gross misuse, and only in consultation with trade association representatives. If a notice arrives, read our guide on handling FBR tax notices.

Is the 1% a sales tax?

No. It is income tax charged on gross turnover under the Income Tax Ordinance. Sales tax is a separate matter, explained in our sales tax guide.

Conclusion

The small shopkeeper scheme gives eligible retailers a clear trade: a flat 1% of sales, a Rs 25,000 floor and a one-page return, in exchange for declaring turnover and assets openly. In return you generally avoid audit, POS requirements and routine shop visits.

The essentials are simple. Check that you are an eligible individual with one shop and turnover up to Rs 200 million. Estimate your tax both ways. File on IRIS, the app or at a tax office by 15 October 2026, and keep your acknowledgement and payment receipt. Remember that sales tax and any other income are separate questions.

If you want a second pair of eyes, Baco Consultants can help you check eligibility, prepare your records and file correctly. Explore our annual income tax filing service for sole proprietors, arrange NTN registration for your business if you are not yet registered, or contact our team to discuss your shop. Islamabad-based shopkeepers can also read about our FBR tax consultant services.