Does minimum tax on turnover apply to a retail shop, and at what rate?

Minimum tax on turnover is a floor. It matters only when a shop’s normal income tax, worked out on profit, comes out lower than a set percentage of its sales. For most small shops run by one owner, it does not apply at all because of the turnover threshold.

What does the law say?

Section 113(1) applies to a resident company, a permanent establishment of a non-resident company, and “an individual (having turnover of hundred million rupees or above in the tax year 2017 or in any subsequent tax year)” and an association of persons on the same test.

It bites where, because of a loss, a brought-forward loss, an exemption, credits or rebates, or allowances and deductions, no tax is payable or the tax payable is less than the percentage in Division IX of Part I of the First Schedule applied to the person’s turnover from all sources.

Where it applies, section 113(2) says the person pays minimum tax computed at the Division IX rates instead of the actual tax. Section 113(3)(a) defines turnover for goods as “the gross sales or gross receipts, exclusive of Sales Tax and Federal Excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods”.

What rate applies to a shop in tax year 2027?

The Division IX Table, as amended to 30 June 2026, gives the rates. The two lines most relevant to retail are:

Serial	Person	Minimum tax as % of turnover
3(d)	Tier-1 retailers of fast moving consumer goods who are integrated with Board or its computerized system for real time reporting of sales and receipts	0.25%
4	In all other cases	1.25%

Serial 3 also lists petroleum agents and distributors registered under the Sales Tax Act, rice mills and dealers, e-commerce turnover including online marketplaces, dealers in used vehicles and flour mills, all at 0.25%. Section 5 of the Finance Act, 2026 omitted entry (a) of serial 3, which had covered distributors of pharmaceutical products, fast moving consumer goods and cigarettes. A shop that does not fit a named entry falls into serial 4.

What changed for retailers in the Second Schedule?

Clause (24D) of Part II of the Second Schedule used to set 0.25% minimum tax under section 113 for “distributors, dealers, sub-dealers, wholesalers and retailers” of fast moving consumer goods and several other goods, if they appeared on both Active Taxpayers’ Lists. The Finance Act, 2026 substituted the clause. The new clause (24D) sets 0.5% for distributors, dealers, sub-dealers and wholesalers of goods in its Table, and it does not name retailers. As printed, a retailer can no longer point to clause (24D) for a reduced rate.

Worked example (illustrative figures)

Kamran runs a household goods store in Saddar, Rawalpindi, as a sole proprietor. For tax year 2027 his sales, excluding sales tax, are Rs. 140,000,000. After expenses, his normal income tax works out at Rs. 1,200,000 (illustrative).

1. Is the threshold met? Rs. 140,000,000 is above Rs. 100,000,000, so section 113 can apply.
2. Which rate? The store is not an integrated Tier-1 retailer of fast moving consumer goods, so serial 4 applies at 1.25%.
3. Minimum tax: Rs. 140,000,000 x 1.25% = Rs. 1,750,000.
4. Compare: Rs. 1,200,000 is less than Rs. 1,750,000, so Kamran pays Rs. 1,750,000.
5. Excess: Rs. 1,750,000 minus Rs. 1,200,000 = Rs. 550,000.

Section 113(2)(c) lets the excess be carried forward and adjusted against tax liability under clause (1) of Division I, or Division II, of Part I of the First Schedule for two tax years immediately after the year it was paid.

Variation: integrated Tier-1 FMCG retailer. If the store were a Tier-1 retailer of fast moving consumer goods integrated with the Board’s system, serial 3(d) would apply: Rs. 140,000,000 x 0.25% = Rs. 350,000. That is less than Rs. 1,200,000, so Kamran would simply pay his normal tax.

What if my turnover is below Rs. 100 million?

For an individual or association of persons, section 113 does not apply. The person pays normal tax on taxable income, subject to any other provisions such as tax collected in advance under section 236H, which is credited against tax due.

Common mistakes

• Assuming every shopkeeper pays 1.25% of sales. For individuals and AOPs, the Rs. 100 million turnover test comes first.
• Including sales tax in turnover. Section 113(3)(a) excludes sales tax, federal excise duty and trade discounts shown on invoices.
• Relying on clause (24D) for retailers. Since the Finance Act, 2026 the clause covers distributors, dealers, sub-dealers and wholesalers only.
• Claiming 0.25% as any Tier-1 retailer. Serial 3(d) requires both fast moving consumer goods and integration for real time reporting.
• Using an old carry-forward period. The consolidated text shows two tax years, after earlier periods of five and three.

What to check in the official text

Read section 113 of the Income Tax Ordinance as amended to 30 June 2026, the Table in Division IX of Part I of the First Schedule, and clause (24D) of Part II of the Second Schedule. Section 5 of the Finance Act, 2026 shows the latest changes to Division IX and clause (24D). Whether a shop is a Tier-1 retailer is decided under the Sales Tax Act, 1990.