FTS for small shopkeepers: PTBA raises legal, procedural concerns

ISLAMABAD: The Pakistan Tax Bar Association (PTBA) has formally written to Finance Minister Muhammad Aurangzeb, raising legal and procedural concerns regarding the recently announced Fixed Tax Scheme (FTS) for small shopkeepers for Tax Year 2026.

On June 5, 2026, the Finance Minister announced in a press conference a fixed tax scheme targeting small traders with annual turnover of up to Rs. 200 million for Tax Year 2026, along with a draft single-page Return of Income. While PTBA has welcomed the initiative as a positive step toward broadening the tax base and promoting a tax culture among segments of society that have historically remained outside the tax net, it identified several critical ambiguities requiring authoritative clarification before the scheme becomes fully operational.

PTBA’s first and most fundamental concern relates to the undefined scope of the terms “Shopkeeper” and “Small Shopkeeper.” Since neither term has been defined in the Income Tax Ordinance, 2001, it remains unclear whether wholesalers, retailers, distributors, dealers, traders, and other persons engaged in trading activities fall within the scheme’s ambit.

PTBA has warned that if interpreted broadly, the operation of key statutory provisions, including Section 153 (7) (h) and (I) of the Ordinance may be left in effective abeyance for a wide category of taxpayers, creating significant legal uncertainty.

The PTBA has sought clarity on whether the scheme is strictly limited to Tax Year 2026, and whether, with effect from 1st July 2026, all provisions of the Income Tax Ordinance, 2001 shall automatically and fully apply to scheme participants, without any continuing exemptions, concessions, or residual benefits.

The PTBA has flagged the exclusion of taxpayers using credit card or POS machines from the scheme’s scope as potentially counterproductive.

It argues that penalizing documented, electronically-transacting businesses while extending the scheme’s benefits to cash-based traders runs contrary to the government’s own stated objective of encouraging documented transactions. It urged a review of this exclusion.

It said under the scheme, participants are required to pay tax at 1 percent of turnover after adjusting tax already withheld, subject to a minimum of the tax paid in Tax Year 2025 or Rs. 25,000, whichever is higher.

It noted that the applicable rates appear on the higher side and has sought clarification on the distinction between “tax payable” and “tax paid” for Tax Year 2025, a distinction that carries significant financial implications for taxpayers.

The scheme is notably silent on the continued applicability of Sections 236G and 236H of the Income Tax Ordinance, which relate to tax collection from distributors and retailers, PTBA noted and requested express clarification on whether these provisions will continue to apply to scheme participants, and whether any tax collected under these sections shall remain adjustable against the scheme’s tax liability.

It said the proposed penalties ranging from Rs. 10,000 to Rs. 50,000 for non-filing have raised concerns regarding potential conflict with existing penal provisions already embedded in the Ordinance.

It questioned whether simultaneous application of scheme-specific penalties alongside the Ordinance’s own penal framework could amount to double jeopardy.

Copyright Business Recorder, 2026