Budget proposes fixed tax regime for small shopkeepers, exemption from audits and POS machines

The federal government has proposed a new fixed tax regime for small shopkeepers in the Budget 2026-27, aiming to bring thousands of retailers into the tax net through a simplified taxation system while addressing long-standing concerns of the trading community.

Presenting the federal budget in the National Assembly, Finance Minister Muhammad Aurangzeb said the government had changed its strategy after consultations with small traders and their representative organizations across the country.

He said the proposed system was designed in response to demands from shopkeepers and sought to address their genuine concerns while encouraging greater tax compliance.

Under the proposal, a new fixed tax system will be introduced through Section 99B of the Income Tax Ordinance. The scheme will be available to small retailers whose annual sales are Rs200 million or less.

According to budget documents, participating shopkeepers will pay a tax equal to one percent of their annual sales. They will be allowed to adjust withholding taxes already deducted, but will be required to pay a minimum of Rs25,000 while filing their annual tax return.

The government has proposed several incentives to encourage participation in the scheme. Shopkeepers opting for the fixed tax regime will not be subject to routine audits and will have no withholding tax liability on purchases.

In another major relief measure, participating retailers will not be required to install Point of Sale (POS) machines, a longstanding concern of many small traders.

Officials said the new framework is intended to simplify tax compliance and reduce interaction between traders and tax authorities.

To distinguish registered businesses, the government has proposed issuing a special green plaque to participating shopkeepers. The plaque will carry a verification QR code and will be displayed at the premises of registered businesses.

According to the proposal, Federal Board of Revenue (FBR) officials will not be permitted to enter such shops for questioning or routine inquiries if the plaque is displayed and the business remains compliant under the scheme.

The government has also proposed introducing a simplified one-page tax return for small retailers. The return form will be made available in major local languages in addition to Urdu to facilitate wider participation.

Officials said the initiative represents a significant shift in tax policy and is intended to broaden the tax base, document economic activity and encourage voluntary compliance while minimizing the regulatory burden on small businesses.

The proposal forms part of the Finance Bill 2026 and will be debated in Parliament before its final approval.