S.R.O. 1166(I)/2026: Small Shopkeepers Special Tax Scheme Explained 1%

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FBR's optional procedure offers eligible individual retailers a simplified return and tax at 1% of gross turnover—but the PKR 25,000 cash-payment rule, exclusions and treatment of other income must be understood before opting in.

Key features at a glance

Who can use SRO 1166(I)/2026?

The procedure is aimed at an individual whose income is mainly derived from a retail shop and whose annual turnover does not exceed PKR 200 million. Eligibility should be tested against every condition in the notification, not merely the current year's turnover.

IndividualRetail shopOne shopTurnover up to Rs.200m

Who is excluded?

• A person whose turnover exceeded PKR 200 million in any one of the preceding three years;
• An individual owning more than one shop;
• A Tier-1 retailer;
• A seller of jewellery; and
• A provider of professional services, such as a doctor, engineer, lawyer or consultant.

Which income is covered?

The special computation covers income from the qualifying shop. It does not turn rental income, salary, profit on debt, capital gains or another independent source into shop income.

Is the scheme optional or compulsory?

It is optional. An eligible shopkeeper may compare:

• the special 1% turnover-based procedure; and
• the regular income tax return based on the normal legal provisions.

The apparently simpler option is not automatically cheaper for every business. Profit margin, admissible expenses, withholding credits, other income and the minimum cash payment can change the result.

Tax rate: 1% of gross turnover

The basic formula is:

Because tax is linked to turnover rather than net profit, a low-margin shop should compare the special procedure with the regular regime before making the election.

Minimum PKR 25,000 cash payment

The payable amount is subject to a minimum cash payment of PKR 25,000 with the return. In practical terms, the amount payable after adjustment of admissible withholding credits, or PKR 25,000, whichever is higher, must be considered.

Withholding tax credit and refund

Eligible withholding tax credit may be adjusted against the tax calculated under the special procedure. If the credit exceeds the tax liability, the excess is not refundable under this procedure. The PKR 25,000 minimum cash-payment requirement should therefore not be confused with the separate concept of section 113 minimum tax.

Return filing and information required

The simplified return is to be filed through FBR IRIS or the designated shopkeepers' mobile application. The shopkeeper should maintain reliable records because the return requires commercial figures such as:

• sales/gross turnover;
• purchases;
• business expenses; and
• net profit and other prescribed particulars.

Audit and departmental proceedings

A qualifying shopkeeper is generally protected from routine audit under the special procedure. This should not be advertised as absolute immunity. Proceedings may still arise in specified circumstances, including on the basis of relevant third-party information and the process described in the notification, which may involve consultation with the concerned trade association.

Relief from selected compliance requirements

Section 153 withholding on purchases of goods

A shopkeeper covered by the procedure is not required to act as a withholding agent under section 153 in relation to purchases of goods covered by the relief. This does not create a blanket exemption from every withholding obligation. For example, tax obligations connected with rent must be checked separately under the normal law.

Section 113 minimum tax

The minimum tax regime under section 113 does not apply to income dealt with under this special procedure. This relief is separate from the scheme's own PKR 25,000 minimum cash-payment requirement.

Sales Tax POS and digital invoicing

An eligible bona fide shopkeeper opting for the scheme is not required, for purposes of this relief, to install Sales Tax POS or digital invoicing infrastructure. Ineligible or separately regulated businesses should not rely on this statement.

Default amounts for failure to choose either route

If a person neither files the regular return nor opts for this procedure by the applicable due date, the notification provides escalating default amounts:

What is the FBR Green Plate?

A qualifying shopkeeper who opts for the procedure may receive an FBR compliance plate—commonly described as a Green Plate—displaying prescribed particulars such as the shopkeeper's name, NTN, business address and QR code.

Does Section 114 already have to apply?

The notification does not expressly say that eligibility is confined only to persons who were already required to file a return under section 114. It describes eligible individuals mainly earning through retail shops and provides a simplified return route. Equally, it would be incorrect to say section 114 is irrelevant: a person's wider filing obligations and other income must still be assessed under the Income Tax Ordinance, 2001.

Practical checklist before opting in

1. Confirm that the business is run by an individual and is genuinely retail.
2. Check current turnover and each of the preceding three years.
3. Confirm that only one shop is owned and no exclusion applies.
4. Identify other sources of income separately.
5. Reconcile sales, purchases, expenses and withholding credits.
6. Compare 1% of turnover plus the minimum cash condition with the regular regime.
7. Review any Tax Year 2025 filing and the prior-year tax safeguard.
8. File through the prescribed channel by the applicable due date and retain records.

Frequently asked questions

Can a shopkeeper with two outlets use the scheme?

No. Ownership of more than one shop is an express exclusion.

Is the PKR 200 million threshold the only eligibility test?

No. Legal status, nature of activity, one-shop condition, preceding-year turnover, Tier-1 status and other exclusions must also be checked.

Does 1% apply to profit?

No. The stated rate applies to gross turnover, not net accounting profit.

Can excess withholding tax be refunded?

No refund is available under this special procedure where withholding credits exceed the tax payable under it.

Does “no audit” mean FBR can never inquire?

No. The regime generally limits routine audit exposure, but specified information or circumstances may still support proceedings under the notification and general law.

Need an eligibility and tax comparison?

AM Tax & Corporate Hub can review your turnover, withholding credits and other income before you opt for the scheme.

WhatsApp: 0327 0444011   |   www.amtaxhub.com

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Sources and disclaimer: This explainer is based principally on FBR S.R.O. 1166(I)/2026 dated 27 July 2026, issued under sections 99B and 237 of the Income Tax Ordinance, 2001, together with the official FBR SRO listing and publicly available professional summaries. It is general educational information, not a substitute for personalised tax or legal advice. The notification, prescribed return, IRIS instructions and any later amendment or clarification prevail. Verify the latest position before filing.