The federal government has decided to introduce a fixed or simplified tax system for small traders and shopkeepers in the 2026-27 budget, aiming to bring more businesses into the tax net and generate additional revenue. However, previous experiences with similar schemes and existing tax collection trends have raised doubts over whether the initiative will achieve its ambitious targets.

According to budget documents, the government has introduced a simplified tax regime for traders with annual business turnover of up to Rs200 million. The scheme aims to encourage small businesses to register with the tax system, with officials expecting around Rs50 billion in additional revenue.

Former member of the Federal Board of Revenue (FBR) Mustafa Ashraf opined that the initiative was a positive step but highlighted concerns over combining documentation efforts with a fixed tax system. “The government claims to have around 4 million taxpayers, and if 1 million taxpayers contribute Rs25,000 each, it could generate Rs25 billion. However, similar trader tax schemes introduced in the past failed to produce significant revenue,” said Ashraf.

For the fiscal year 2026-27, the FBR has been given a tax collection target of Rs15.26 trillion, with the retail sector identified as a major area for increasing revenue. Economic experts feel that despite being a large part of Pakistan’s economy, retail contributes comparatively less to tax collection.

Pakistan has an estimated 3.5 to 4 million traders, but many remain outside the formal tax system. Successive governments have introduced various initiatives to document traders, including fixed tax schemes, but most failed to meet expectations.

A similar fixed tax scheme was introduced in 2014 during the government of Pakistan Muslim League-Nawaz (PML-N), followed by other programs such as the Trader Friendly Scheme. Despite ambitious registration targets, only a limited number of traders became part of the tax system, resulting in a gap between expected and actual revenue collection.

Tax figures from Lahore markets also show differences in business activity and tax payments. Reports indicate that Multan Road Market contributed around Rs10 billion in taxes, while Wapda Town Market paid around Rs1.63 billion. Other markets, including Urdu Bazaar Lahore, contributed about Rs338.7 million, while DHA Y-Block Market reported around Rs248 million.

Meanwhile, some markets reported much lower tax contributions, including Naulakha Bazaar with around Rs14.2 million and Sarafa Bazaar with approximately Rs2.35 million. Experts stress that these figures reflect the gap between actual business activity and tax payments in several markets.

Trader organizations argue that rising electricity costs, inflation, and increasing business expenses have already created difficulties for shopkeepers. The government, however, believes that bringing retailers into the formal tax system will strengthen the economy and improve revenue collection.

Former Lahore Chamber president Mian Muhammad Ali believed that the new FBR fixed tax system was an important move. “The Rs25,000 tax amount is low and would provide traders with a tax certificate and protection from repeated audits and inquiries. Small retailers would effectively pay around Rs2,000 per month under the system,” noted Ali.

Ali suggested that the government should keep the tax rate fixed for five years, arguing that since the system has been approved through Parliament, any major changes should also require parliamentary approval.

Economic experts emphasise that the success of the scheme will ultimately depend on the government’s ability to bring millions of traders into the tax net and meet its revenue goals, rather than repeating the shortcomings of previous initiatives.