FBR's New 1% Fixed Tax Scheme for Small Shopkeepers Explained (SRO 1166)
FBR has notified a new, optional way for small shopkeepers to pay income tax — a flat 1% of turnover instead of working through the normal return and audit process. It's the latest attempt to pull retailers who've stayed outside the tax net into some form of documented taxation, and the details matter more than the headline rate.
What the notification actually says
Through Income Tax SRO 1166 of 2026, FBR introduced a "Special Procedure for Small Shopkeepers" — a simplified regime individual retailers can opt into instead of filing a standard income tax return under the normal law. The scheme follows an earlier draft (SRO 1109) that was opened for public comment in mid-July before being finalized.
Who actually qualifies
The eligibility rules are narrower than "any small shop":
- Annual turnover (gross sales) must not exceed Rs200 million, and must not have crossed that threshold in any of the preceding three years
- The retailer can own only one shop — multi-outlet traders don't qualify
- Tier-1 retailers (the large, POS-integrated chains already under a separate regime), jewellers, and professionals such as doctors, engineers, and lawyers are excluded
- Income from the shop can't be combined with other income sources under this scheme
How the tax actually works
Shopkeepers who opt in pay 1% of gross annual turnover as their income tax liability, with a minimum cash payment of Rs25,000 even if tax already withheld at source during the year would otherwise cover it — meaning withholding tax deducted on purchases or utility bills can be adjusted against the 1% liability, but any excess doesn't come back as a refund. In exchange, participants are told they'll generally sit outside FBR's routine audit selection, and the scheme doesn't carry the digital invoicing or point-of-sale integration requirements that apply to Tier-1 retailers.
Why tax lawyers are pushing back
The Pakistan Tax Bar Association has already flagged legal concerns with how the scheme was implemented, questioning whether the simplified Annex-I return format has sufficient statutory backing to substitute for the Return of Total Income required under the Income Tax Ordinance, 2001. PTBA has also asked FBR to clarify how the scheme treats shopkeepers with multiple income sources, what audit protection actually means in practice, and how non-compliance will be penalized — questions that matter because the scheme is still new enough that enrollment guidance is thinner than the notification itself.
The takeaway
If you run a small retail shop under the Rs200 million turnover mark, this scheme is worth evaluating on the numbers rather than the pitch — a flat percentage of turnover isn't automatically cheaper than filing normally, and the audit-immunity promise doesn't mean zero scrutiny. FBR has published the full notification on its SROs page; enrollment is available through the IRIS portal, the FBR mobile app, or a local tax office.