ISLAMABAD: The Pakistan Tax Bar Association (PTBA) has expressed serious legal and procedural concerns regarding the Fixed Tax Scheme (FTS) for small shopkeepers announced by Finance Minister Muhammad Aurangzeb for Tax Year 2026.
In a letter addressed to the finance minister, PTBA welcomed the initiative as a positive step toward expanding Pakistan’s tax base and encouraging tax compliance among traders operating outside the formal tax system. However, the association highlighted several ambiguities that it believes require immediate clarification before the scheme is implemented.
The Fixed Tax Scheme, unveiled on June 5, 2026, targets small traders with annual turnover of up to Rs. 200 million and includes a simplified one-page income tax return. Despite supporting the objective, PTBA noted that the scheme lacks clear definitions of key terms such as “Shopkeeper” and “Small Shopkeeper.”
According to PTBA, the absence of these definitions in the Income Tax Ordinance, 2001 creates uncertainty over whether wholesalers, retailers, distributors, dealers, and other trading businesses are covered under the scheme. The association warned that a broad interpretation could effectively suspend the application of important withholding tax provisions under Section 153(7)(h) and (i), leading to significant legal complications.
PTBA also sought clarification on whether the scheme will remain limited to Tax Year 2026 and whether all provisions of the Income Tax Ordinance will automatically apply to participants from July 1, 2026, without any continuing exemptions or concessions.
Another major concern raised by the association relates to the exclusion of businesses using Point of Sale (POS) systems and credit card payment facilities. PTBA argued that denying scheme benefits to documented businesses while favoring cash-based traders could discourage digital transactions and contradict the government’s objective of promoting a documented economy.
Under the proposed scheme, eligible traders would be required to pay tax at the rate of one percent of annual turnover after adjustment of taxes already withheld. The tax liability would be subject to a minimum amount equal to either the tax paid in Tax Year 2025 or Rs. 25,000, whichever is higher.
PTBA believes the proposed tax rates are relatively high and has requested clarification regarding the distinction between “tax payable” and “tax paid” for Tax Year 2025, noting that the interpretation could significantly affect taxpayers’ liabilities.
The association further pointed out that the scheme does not address the applicability of Sections 236G and 236H of the Income Tax Ordinance, which govern tax collection from distributors, dealers, wholesalers, and retailers. PTBA has asked the government to clarify whether these provisions will continue to apply and whether taxes collected under these sections will remain adjustable against liabilities under the Fixed Tax Scheme.
Additionally, PTBA raised concerns over proposed penalties ranging from Rs. 10,000 to Rs. 50,000 for non-filing of returns. The association questioned whether imposing scheme-specific penalties alongside existing penalties under the Income Tax Ordinance could result in double punishment for the same default, potentially creating legal challenges.
PTBA has urged the government to address these issues and provide comprehensive guidelines to ensure smooth implementation of the Fixed Tax Scheme and avoid uncertainty for taxpayers.
