What sales tax rate does a Tier-1 retailer charge on goods it sells?

What does the law say?

A Tier-1 retailer does not have a rate of its own. Section 3(9A) of the Sales Tax Act, 1990 says that, notwithstanding anything else in the Act, “Tier-1 retailers shall pay sales tax at the rate as applicable to the goods sold under relevant provisions of this Act or a notification issued there under”. So the rate follows the item on the shelf, not the shop.

That sends you back to the general charging rules in section 3:

What is being sold	Rule	Rate and base
Ordinary taxable goods	Section 3(1)(a)	18 percent of the value of the supply
Goods listed in the Third Schedule	Section 3(2)(a)	18 percent of the retail price printed on the article or pack
Goods listed in the Eighth Schedule	Section 3(2)(aa)	The rate and conditions printed in the Eighth Schedule
Goods listed in the Sixth Schedule	Section 13(1)	Exempt, subject to conditions
Goods covered by a notification	Section 3(2)(b)	A higher or lower rate the Federal Government notifies

The “value of supply” in section 2(46)(a) is the consideration in money, including Federal and Provincial duties and taxes, “but excluding the amount of tax”. The sales tax is worked out on that value and added on top.

Who counts as a Tier-1 retailer?

Section 2(43A) defines a Tier-1 retailer as a retailer in any one or more of these categories, as the text stands at 30 June 2026:

• a unit of a national or international chain of stores;
• a retailer in an air-conditioned shopping mall, plaza or centre, excluding kiosks;
• a retailer whose cumulative electricity bill in the preceding twelve consecutive months exceeds Rs. 1,200,000;
• a wholesaler-cum-retailer with turnover of more than two hundred million rupees engaged in bulk import and supply of consumer goods to retailers and to consumers;
• a retailer whose turnover in the preceding twelve consecutive months exceeds two hundred million rupees, either by declaration or worked back from tax deducted on its purchases under the Income Tax Ordinance, 2001; and
• any other person or class of persons the Board prescribes (the Board may also exclude persons by notification).

A retailer outside all of these categories is dealt with under section 3(9) instead, which collects sales tax through the shop’s electricity bill.

How does the Third Schedule work in a shop?

The Third Schedule lists goods taxed on their retail price rather than on the shop’s selling price. Items listed in the edition amended to 30 June 2026 include fruit juices, ice cream, aerated waters, cigarettes, toilet soap, detergents, shampoo, toothpaste, cosmetics, tea, powder drinks, tissue paper, branded spices, cement in retail packing, bottled water, household electrical and gas appliances, mattresses, paints in retail packing, lubricants, batteries, tyres, motorcycles, branded biscuits, tiles, packed auto parts, cooking oils and fats, confectionery, pasta, sauces and plastic household items sold in retail packing.

Section 3(2)(a) requires the manufacturer, or the importer for imported goods, to print or emboss the retail price and the amount of sales tax on each article or pack. Section 2(27) defines “retail price” as the price fixed by the manufacturer or importer, inclusive of all duties, charges and taxes other than sales tax, at which the item is sold to consumers.

Worked example (illustrative figures)

Zainab runs a clothing and household goods outlet in an air-conditioned mall in Lahore, so she falls in the second category above. One customer buys three things:

1. A kurta, sold for Rs. 5,000 before tax. It is not in the Third, Sixth or Eighth Schedule. Tax under section 3(1): 18% of Rs. 5,000 = Rs. 900. The customer pays Rs. 5,900.
2. A bottle of shampoo. Shampoo is serial 8 of the Third Schedule. The pack prints a retail price of Rs. 600 and sales tax of Rs. 108 (18% of Rs. 600). Tax is Rs. 108, worked on the printed retail price, not on whatever Zainab charges.
3. A packet of an item listed in the Sixth Schedule. Exempt under section 13(1), so Rs. 0, provided any conditions attached to that entry are met.

Total sales tax on the sale: Rs. 900 + Rs. 108 + Rs. 0 = Rs. 1,008.

The figures are invented. The rates are the ones printed in sections 3(1) and 3(2)(a).

What if the goods are also in the Eighth Schedule?

Section 3(2)(a) says that where a Third Schedule item is also in the Eighth Schedule, it is charged “at the rates specified therein”. Section 3(2)(aa) applies Eighth Schedule rates and conditions to any goods listed there. The Eighth Schedule is a long table with a rate and a condition for each entry, so the rate depends on the exact entry. Check the entry and its condition in the official text before relying on a reduced rate.

What if the buyer is not registered?

Section 3(1A) charges further tax of four percent on taxable supplies made to a person who has not obtained registration or is not an active taxpayer, but it allows the Federal Government to specify by notification supplies on which further tax is not charged. This corpus does not include those notifications, so this page does not say whether further tax is added on a Tier-1 retailer’s sales to ordinary customers.

Common mistakes

• Thinking Tier-1 retailers pay a flat “retail rate”. Section 3(9A) ties the rate to the goods sold, item by item.
• Charging 18 percent on the shop’s own price for Third Schedule goods. Section 3(2)(a) sets the base as the printed retail price.
• Assuming the old reduced-rate proviso still applies. Footnotes to section 3 record that the proviso under section 3(9A) was omitted by the Finance Act, 2025.
• Treating a mall kiosk as Tier-1 automatically. Section 2(43A)(b) excludes kiosks from the mall category, though a kiosk could still fall in another category.

What to check in the official text

Read section 3(1), 3(2) and 3(9A), the Tier-1 definition in section 2(43A) and the “retail price” definition in section 2(27). Then find the exact item in the Third, Sixth and Eighth Schedules. Section 3(2)(b) and the provisos to section 3(2)(a) allow notifications that change rates for particular goods; those notifications are not in this corpus and should be checked separately.