Pakistan's tax authority has quietly opened a new front in its long struggle to broaden the nation's narrow tax base: small shopkeepers. A newly notified voluntary income tax regime, outlined in Income Tax SRO 1166 issued on Tuesday, offers retailers a simplified alternative to the standard system, complete with exemptions from audits, withholding taxes, and mandatory digital invoicing. Main Developments Individual retailers with an annual turnover of up to Rs200 million can now opt to pay income tax equal to one percent of their gross turnover instead of filing returns under the normal regime. Participants must pay a minimum cash tax of Rs25,000, even if taxes already deducted at source exceed their liability — any excess will not be refundable. Registration is available through the FBR's IRIS portal, a dedicated mobile application, or at tax offices. The scheme remains optional: eligible shopkeepers can either join the simplified regime or continue filing regular income tax returns. Read also: FTO Orders Nationwide Probe Into iPhone 16 Courier Scam Background The draft procedures were first issued on July 14 to seek public objections and suggestions, a step that reflects earlier failed attempts to bring small retailers into the tax net. The new special procedure excludes retailers whose turnover exceeded Rs200 million in any of the preceding three years, owners of more than one shop, tier-I retailers, jewellers, and professionals such as doctors, engineers, and lawyers. Retailers who filed tax returns for 2025 may opt for the scheme only if their liability is not lower than the previous year and they have not split or renamed their businesses to qualify. Why It Matters Pakistan's tax-to-GDP ratio remains among the lowest in the region, and small retailers have historically been a difficult segment to capture. By offering audit exemptions and simplified compliance, the FBR hopes to encourage voluntary registration without the friction that has alienated businesses in the past. Departmental proceedings against participants can only be initiated after consultation with trade association representatives and only when third-party information reveals significant economic transactions, ownership of expensive assets, or misuse of the scheme for tax avoidance. What's Next Eligible retailers can now register through the available channels and begin paying tax under the one-percent turnover rate. The FBR has indicated that participants will generally remain outside the routine audit framework, but the agency retains the ability to investigate if misuse is detected via third-party data. Whether the voluntary nature of the scheme will attract enough registrants to meaningfully expand the tax base remains an open question.