Written by Faisal Shahnawaz in Taxation, Top stories Tax experts say the optional 1% turnover-based regime could create an uneven playing field by offering extensive compliance relief to eligible retailers. KARACHI: The Federal Board of Revenue (FBR) has introduced a simplified tax procedure for small shopkeepers through S.R.O. 1166(I)/2026, offering eligible retailers the option to pay income tax at a flat rate of 1% of annual turnover. While the initiative is designed to encourage tax compliance and broaden the tax base, tax professionals have questioned whether the scheme effectively amounts to a hidden tax amnesty. The notification, issued on July 27, 2026, establishes an optional taxation regime for individual retailers with annual turnover of up to Rs200 million for Tax Year 2026. Eligible taxpayers may either opt for the simplified scheme or continue to file income tax returns under the normal provisions of the Income Tax Ordinance, 2001. Eligibility criteria The scheme applies exclusively to individual retailers whose principal source of income is the operation of a retail shop and whose annual turnover does not exceed Rs200 million. However, several categories of taxpayers have been excluded, including: • Tier-1 retailers; • Jewellery retailers; • Professionals such as doctors, lawyers and consultants; • Owners of multiple retail outlets; and • Businesses whose annual turnover exceeded Rs200 million in any of the preceding three tax years. According to the FBR, the initiative is intended to simplify tax compliance for small retailers while encouraging undocumented businesses to enter the formal tax system. Experts question effective tax burden Despite its stated objective, tax experts argue that the scheme could significantly reduce the effective tax burden for qualifying retailers compared with businesses operating under the normal tax regime. Under the simplified procedure, participants will pay income tax at 1% of gross annual turnover, subject to a minimum payment of Rs25,000. Critics note that companies operating under the corporate tax regime are subject to 29% income tax, in addition to super tax and other applicable levies. They…