Non-compliant traders to face Rs150,000 penalty

As 100 new retailers submitted returns under the fixed tax scheme and paid an average of Rs32,000, the Federal Board of Revenue (FBR) decided to move against non-compliant shopkeepers under the old law and planned to serve them first notice with a Rs150,000 penalty.

The Rs150,000 penalty with the notice to file income tax returns on the expiry of the extended deadline will be many times more than the first-month penalty of Rs10,000 under Prime Minister Shehbaz Sharif's third tax scheme for retailers in the past four years.

The FBR management plans to map 30,000 traders, who should receive the first notice – a target that seems over-ambitious. Government sources told The Express Tribune that after the failure of the new tax scheme, the internal blame game has begun. In a meeting, they said, the FBR administration described the scheme as not implementable. FBR authorities were of the view that no effective punitive measures had been given in the scheme to force traders to become filers. The Rs10,000 penalty in the first month was many times lower than the penalty under the Income Tax Ordinance for not filing income tax returns and the wealth statement, according to them.

The government had offered traders to pay just 1% fixed income tax or a minimum of Rs25,000 in return for exemption from audit and the facility to deal in cash by not installing the digital machines. As of Wednesday, only 100 new traders had joined the scheme and paid Rs3.2 million in income tax as their full and final liability for tax year 2026 that ended in June. The average tax paid by these traders was Rs32,000, which was Rs7,000 higher than the minimum tax required under the scheme. A total of 2,593 new retailers have so far registered under the new scheme but only 100 of them opted to file returns. Overall, the total returns under the scheme were over 1,000 but 99% were already part of the tax system but they contributed very little.

According to the FBR, there were 4.3 million traders in Pakistan and only 600,000 were part of the tax system. The new scheme targeted the remaining 3.7 million shopkeepers. Sources said there were two views within the government to proceed against the non-compliant traders. One view was that the government should adopt a gradual approach where in the first month a penalty of Rs10,000 would be imposed that would increase to Rs25,000 in the second month and Rs50,000 in the third month. The other view was that the state should remain patient and follow the penalty path given in the scheme.

Tax officials said the scheme was voluntary and those who would not join till the expiry of the deadline were exposed to a treatment under the existing law, a top taxman remarked. They said the FBR would send at least 10,000 to 15,000 notices under Section 114(4) of the Income Tax Ordinance instead of under the fixed tax scheme.

Section 114 (4) states that the FBR commissioner may ask a person to file a return within 30 days from the date of service of such notice or such longer or shorter period as may be specified in such notice or as the commissioner may allow. Section 182 (1) states that where any person fails to furnish a return of income as required under Section 114 within the due date, the FBR can impose a minimum penalty of Rs10,000 in case of an individual having 75% or more income from salary; or Rs50,000 in all other cases.

In addition to the Rs50,000 penalty, these traders would also be liable to a Rs100,000 penalty for not filing the wealth statement. Section 182 (1AA) states where any person fails to furnish a wealth statement or wealth reconciliation statement, such person shall pay a penalty of 0.1% of the taxable income per week or Rs100,000, whichever is higher.

The government is now facing another challenge as traders have announced a partial strike on Thursday against the registration of police cases for using plastic bags. Traders' leader Ajmal Baloch maintained that he still supported the fixed tax scheme and the protest was only against the ICT administration. He said someone from within the government was trying to sabotage the scheme by creating hurdles in the way of effective working of the online application designed to file returns.

Baloch said the application either remained non-operational and if it was operational there were technical glitches. He added that the application was not allowing adjustment of withholding tax paid through electricity bills and it was rectified on Wednesday.