The Federal Board of Revenue (FBR) has unveiled a voluntary tax regime for small shopkeepers, aiming to bring 3.5 million retailers into the tax net by 2026-27 without the usual burdens of audits, withholding taxes, or digital invoicing. The draft proposal, which is open for public feedback for one week, marks the latest effort to broaden Pakistan's notoriously narrow tax base. Main Developments Under the proposed scheme, individual retailers with an annual turnover of up to Rs200 million can opt to pay income tax equal to one percent of their gross turnover instead of filing regular returns. A minimum cash tax of Rs25,000 applies, even if deducted taxes already exceed that amount, and any excess withholding tax is non-refundable. Eligible shopkeepers may register via the FBR's IRIS portal, a dedicated mobile app, or at tax offices. The scheme 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 like doctors, engineers, and lawyers. Read also: 3 Key Findings on Pakistan's Internet Quality and Telecom Challenges Participants will be exempt from routine audit, withholding tax obligations under Section 153 of the Income Tax Ordinance, and the minimum tax provisions of Section 113 and the standard 1.25 percent minimum tax. They also do not need to install point-of-sale systems or digital invoicing infrastructure. Background Pakistan has long struggled with a low tax-to-GDP ratio, partly due to a large informal retail sector. Previous attempts to tax small traders faced resistance, with shopkeepers often citing complex procedures and harassment by tax officials. The FBR's new scheme is designed to address these concerns by offering simplicity and immunity from routine inspections. The draft also introduces a "Green Plate" system—a QR code-bearing plate displaying the taxpayer's name, National Tax Number, and business address. Bona fide retailers displaying this plate would not face FBR officials entering their premises for tax matters. Why It Matters Broadening the tax base is critical for Pakistan's fiscal stability, as the government seeks to increase revenues without raising rates on existing taxpayers. By targeting 3.5 million small shopkeepers, the FBR aims to reduce the burden on salaried individuals and large corporations. The voluntary nature of the scheme may encourage compliance, but the non-refundable minimum tax and exclusion of certain businesses could limit uptake. Escalating penalties for non-compliance—Rs10,000 for the first default, Rs25,000 for the second, and Rs50,000 for the third—create a strong deterrent for those who neither file regular returns nor opt into the simplified regime. What's Next The FBR will finalize the draft within one week after reviewing public objections and suggestions. If approved, the scheme would become available for the 2026-27 tax year. The success of the initiative will depend on adoption rates and the effectiveness of the Green Plate system in reducing harassment and building trust.