Government Weighs Reprieve for 1.2m Traders in Fixed Tax Scheme

The government is weighing a three-month reprieve for 1.2m traders who did not join its fixed income tax scheme, as tax authorities put two options before Finance Minister Muhammad Aurangzeb this week.

The Express Tribune reported that the authorities have digitally identified the shopkeepers, each owning a single shop, who stayed outside the scheme; around 6,000 can be physically verified, but no action has been taken yet.

Under one option, the government would hold off any adverse action for three more months. Under the other, it would move against the traders under the normal income tax law, which would bring an immediate minimum penalty of Rs175,000, exposure to a tax audit and full disclosure of assets.

A scheme that fell far short

The scheme offered retailers the chance to pay only 1% tax on total sales in return for complete exemption from audit and permission to deal in cash.

Officials had hoped at least one million of the 3.8 million non-filers would join and pay at least Rs50 billion in income tax. Only 222 new traders filed by October 31, paying a negligible sum.

The authorities have identified nearly 1.5 million retailers who fall within the scheme, but only around 290,000 were already in the tax system. Of the remaining nearly 1.2 million, around 390,000 are registered retailers who chose not to file, and 772,000 are unregistered.

The two options before the finance minister

The first option would let eligible shopkeepers file returns by the end of January 2027, with a surcharge rising in steps: Rs10,000 by end-November, Rs35,000 by end-December and Rs85,000 by end-January.

Under Rule 10, a shopkeeper who files neither a regular return nor opts for the scheme by the due date faces penalties of Rs10,000, Rs25,000 and Rs50,000 on successive defaults. Tax authorities argue Section 214A of the Income Tax Ordinance lets the government condone the delay for small shopkeepers.

The second option is enforcement. A retailer asked to file a normal return after the October 31 deadline would face three penalties totalling Rs175,000: Rs25,000, Rs50,000 for the returns and Rs100,000 for the wealth statement. Notices would start with the 6,000 physically verified shopkeepers.

Parliament told no extension, then a rethink

Early this week, Minister of State for Finance and Revenue Bilal Azhar Kayani told the National Assembly Standing Committee on Finance that the government would seek the attorney general’s opinion before any enforcement action, but maintained no extension would be given.

Kayani had also said there would be no further extension after October 31, and that the government was moving to fines and enforcement. The committee expressed disappointment over the failure of a scheme that offered a general audit exemption and no requirement for digital invoicing.

Committee chairman Syed Naveed Qamar repeatedly asked whether Prime Minister Shehbaz Sharif and the federal cabinet were in favour of taking punitive action and would not budge when traders threatened to observe a strike.

What the choice means for the 1.2m traders

A three-month reprieve would cap the cost at Rs85,000. Enforcement under the normal law would start at Rs175,000, add a tax audit and force a full statement of assets.

The FBR has been here before: it extended the 2026 income tax return deadline twice this year after IRIS glitches, and 6.9 million returns were filed. Deadlines alone do not bring traders into the net.

The FBR has also been tightening compliance elsewhere, including new tax rules for steel mills and a December 30 deadline for digital production monitoring. Banks have meanwhile been told to ease SME loans as the government pushes towards a Rs2.2 trillion SME financing target by 2028.

The finance minister’s decision will settle whether the 1.2 million shopkeepers get a softer landing, or face the enforcement promised to the committee.

Frequently asked questions

What reprieve is the government considering for traders?

A three-month extension letting shopkeepers file by end-January 2027, paying up to Rs85,000 instead of facing enforcement.

How many traders stayed outside the fixed tax scheme?

Nearly 1.2 million, including around 390,000 registered retailers and 772,000 unregistered retailers.

What happens if the government chooses enforcement?

A minimum penalty of Rs175,000, exposure to a tax audit and full disclosure of assets, starting with notices to 6,000 physically verified shopkeepers.

What did the fixed tax scheme offer traders?

Retailers could pay 1% tax on total sales for full audit exemption and permission to deal in cash. Only 222 filed by October 31.