The federal government has proposed a new fixed tax regime for small retailers and shopkeepers under Section 99B of the Income Tax Ordinance as part of Budget 2026-27.
Under the proposed scheme, small retailers with annual sales of less than Rs. 10 million will be required to pay a tax equal to 0.5 percent of their annual sales. The measure is aimed at simplifying tax compliance and bringing more small businesses into the formal tax system.
According to the budget speech, retailers will be allowed to adjust withholding taxes already paid against their tax liability under the scheme. However, a minimum payment of Rs. 25,000 will be required when filing the annual statement.
The government has also proposed several incentives for businesses opting into the scheme. Eligible retailers will not be subjected to tax audits and will be exempt from withholding tax obligations on purchases. They will also not be required to install point-of-sale (POS) machines, reducing compliance costs for small businesses.
To improve transparency and documentation, a color-rating system will be introduced for participating shopkeepers. Each registered business will receive a verified QR code to facilitate identification and verification within the tax framework.
Officials stated that only eligible businesses already available in the Federal Board of Revenue (FBR) database will be able to join the scheme. The government also plans to introduce simplified tax returns and monthly statements in major regional languages in addition to English and Urdu to make compliance easier for small business owners across the country.
The tax amount will be adjusted annually to account for inflation, while businesses adopting digital payment systems and greater digital integration may receive additional consideration under the framework.
The initiative is part of the government’s broader effort to expand the tax base, improve documentation of the economy, and simplify taxation procedures for small businesses while encouraging voluntary compliance.
