Pakistan Weighs Three-Month Extension for Fixed Tax Scheme After Weak Retailer Turnout
Only 222 additional traders joined the fixed tax scheme by the October 31 deadline, prompting authorities to consider extending enrollment to January 2027 with a reduced surcharge.
Pakistan's tax authorities are weighing a three-month extension for nearly 1.2 million shopkeepers who have so far stayed out of the government's fixed tax scheme, a move that could postpone enforcement action carrying penalties of up to Rs. 175,000. Finance Minister Muhammad Aurangzeb has been presented with two options: allowing enrollment until January 31, 2027, with a capped surcharge of Rs. 85,000, or pursuing noncompliant traders under the regular income tax law, which brings steeper penalties, possible audits and mandatory asset disclosure. No final decision has been announced.
The scheme, which offers retailers a 1 percent tax on total sales in exchange for exemptions from audits, restrictions on third-party proceedings and permission for cash transactions, has fallen well short of expectations. Authorities had hoped at least 1 million retailers would sign up this year, yielding a minimum of Rs. 50 billion in income tax revenue. Instead, only 222 additional traders filed returns and paid tax by the October 31 deadline, generating a negligible sum.
According to tax officials, roughly 1.5 million retailers fall within the scheme's scope. About 290,000 were already part of the tax system, while nearly 1.2 million digitally identified shopkeepers neither joined the new scheme nor filed returns under existing law. Of these, approximately 390,000 are registered retailers who failed to file, and another 772,000 are unregistered businesses. Authorities have physically verified around 6,000 shopkeepers, who could be targeted in a first round of enforcement notices.
Under the proposed extension, retailers filing by the end of November would pay Rs. 10,000, rising to Rs. 35,000 by the end of December and Rs. 85,000 by the end of January. The arrangement draws on Rule 10, which sets penalties of Rs. 10,000 for a first default, Rs. 25,000 for a second and Rs. 50,000 for a third, with at least one month between enforcement proceedings. The plan has raised questions about whether retailers would receive preferential treatment over other taxpayers, who face a Rs. 25,000 penalty for late filing.
Tax authorities believe the government could grant a general extension to small retailers under Section 214A of the Income Tax Ordinance, which allows the Federal Board of Revenue to extend deadlines for compliance requirements even after the original date has passed, subject to an aggregate limit of two years. Earlier 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 launching enforcement, and that no further extension had been approved beyond October 31.
The parliamentary committee voiced disappointment over the scheme's weak uptake, with its chairman, Syed Naveed Qamar, pressing officials on whether Prime Minister Shehbaz Sharif and the federal cabinet support punitive action despite the threat of a traders' strike. The scheme was originally designed to bring retailers into the tax net from an estimated pool of 3.8 million nonfilers, but has struggled to attract participants despite its audit exemptions and relaxed digital invoicing requirements.
