The Federal Board of Revenue (FBR) is preparing a phased enforcement drive against retailers who have stayed outside the tax net, after its simplified Asaan Tax Scheme attracted far fewer shopkeepers than the government had hoped. According to sources cited by ProPakistani, the first phase would target around 6,000 unregistered retailers, with gas and electricity disconnections planned as a last resort for persistent defaulters.

The plan has been finalised by the FBR and will be submitted to the government for approval, according to the report, with the aim of bringing targeted retailers into the tax net by June next year. The board is said to have access to CNIC and utility records for around 1.4 million shopkeepers, out of an estimated 3.7 million potential retailers, which gives it a starting list for enforcement. Retailers who ignore registration notices and penalties could face escalating fines, and authorities can also seal shops that remain outside the tax system. The report did not give the exact penalty amounts, and the plan has not yet been officially announced.

The move follows a string of statements that the scheme has underperformed. On Tuesday, Minister of State for Finance Bilal Azhar Kayani told the National Assembly Standing Committee on Finance that registration had fallen short of expectations despite the government accepting all demands put forward by traders, and that the government was starting strict legal action and fines against non-filer shopkeepers. He said traders had agreed to the penalties for failing to file returns when the scheme was designed in consultation with their representatives. Committee Chairman Syed Naveed Qamar questioned how enforcement would be carried out, recalling that the government had expected around 80% of retailers to register. If even 20% had not registered, he said, the government might be back at square one.

The numbers explain the frustration. The scheme lets small retailers choose between paying a fixed 1% tax on their sales and continuing to file under the regular income tax system, and it offers registered shopkeepers protection from routine FBR visits, questioning and audits, symbolised by a “green plate” displayed at the shop. In mid-September, ProPakistani reported that only 181 simplified returns had been filed, generating Rs18 million in tax, even though about 5,000 retailers had registered through the scheme’s app and an estimated 3.5 million retailers operate across the country. A few weeks later, Daily Times reported that only 1,571 returns had been filed, even after the income tax filing deadline was extended to October 31. Bloom Pakistan found that of 317 shopkeepers who had filed returns under the scheme at one point, 315 already belonged to the income tax system, with just two new traders from Quetta and Rawalpindi. By this week’s reporting, around 1,750 shopkeepers had registered under the scheme, but only 220 were new entrants, despite the FBR having identified roughly 3.6 million potential non-filers in the retail sector. Different outlets count registrations and returns differently, so the figures are not directly comparable, but the pattern is consistent: very few new taxpayers.

The retail sector is large, and estimates of its size vary. FBR Chairman Rashid Langrial told a Senate committee on October 1 that the country has about 4.3 million retailers, of whom around 600,000 are registered filers, leaving some 3.7 million outside the system. At that briefing, he said the government would launch a crackdown on about one million non-filers who had not taken advantage of what officials described as a highly favourable scheme. The latest plan appears to be the operational version of that decision, with the 1.4 million figure referring to the shopkeepers for whom the FBR already holds identity and utility data.

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This is the government’s second attempt to bring retailers into the system. Bloom Pakistan noted that an earlier initiative, the Tajir Dost scheme, also failed to achieve its expected results. Tax experts quoted by Daily Times attribute the low response to deep-rooted mistrust between small shopkeepers and revenue authorities, and say that persistent inflation and high operating costs make retailers reluctant to take on new obligations. The same report suggested that the tax agency may replace voluntary incentives with strict legal compliance measures, which is what the latest plan appears to do.

The push has an external dimension as well. The International Monetary Fund has repeatedly called for stronger taxation of the retail, wholesale and agriculture sectors, and for bringing untaxed professionals and other segments into the tax system, as part of its programme with Pakistan. At a tax reform workshop in Islamabad last month, IMF Middle East and Central Asia Department Director Jihad Azour urged the country to bring under-taxed sectors into the net and rationalise concessions. With the FBR chasing ambitious filer targets, including a goal of 8.5 million filers for fiscal year 2026-27, the retail sector is one of the most obvious places to look for growth in the tax base.

Several questions will decide whether the crackdown works. Enforcement based on utility records raises practical concerns, such as how to separate genuine retailers from households with commercial connections or businesses that fall below the filing threshold. Disconnecting gas and electricity is a severe measure that affects the premises and everyone who depends on them, and it is unclear what legal process and appeal rights would apply before it is used. There is also the question of capacity: an enforcement drive that begins with 6,000 targets in a country with more than three million non-filing shops will need to be sustained and consistent to change behaviour. And the history of tension between traders and tax collectors suggests that how the drive is carried out, including the conduct of officials, will matter as much as the penalties written into the plan.

The government’s argument is simple. It created a scheme that traders asked for, set a low fixed rate, promised protection from audits and extended deadlines, and it says the response has been poor. Traders, for their part, are likely to point to inflation, thin margins and a lack of trust in the tax authorities. Which side’s argument prevails will become clearer when the plan is approved and the first notices go out.

Compiled by the Weekly PK Business Desk.