Why does my supplier deduct advance tax under section 236H, and at what rate?

When a wholesaler adds a small line of “advance tax” to a shopkeeper’s invoice, it is usually section 236H at work. The supplier is acting as a collection point for income tax that the retailer can later count against his own tax.

What does the law say?

Section 236H(1) says every manufacturer, distributor, dealer, wholesaler or commercial importer, at the time of sale to retailers, and every distributor or dealer selling to another wholesaler, “shall collect advance tax at the rate specified in Division XV of Part IV of the First Schedule” from the person to whom the sale is made.

Section 236H(2) says credit for the tax collected “shall be allowed in computing the tax due by the retailer on the taxable income for the tax year in which the tax was collected.”

Division XV of Part IV of the First Schedule sets one rate: “The rate of collection of tax under section 236H on the gross amount of sales shall be 0.5%.”

For a retailer who is not on the Active Taxpayers’ List, section 100BA sends the matter to the Tenth Schedule. The Table under rule 1 of that Schedule lists, at serial 4, “Section 236H” on the “gross amount of sale to retailers” at 2.5%. Section 236H does not appear in the list of excluded sections in rule 10.

Retailer’s status	Rate on gross amount of sale (tax year 2027)	Source
On the Active Taxpayers’ List	0.5%	Division XV, Part IV, First Schedule
Not on the Active Taxpayers’ List	2.5%	Tenth Schedule, rule 1, Table serial 4

How does it work in practice?

The supplier works out the tax on the gross amount of the sale and collects it from the retailer at the time of sale. For the shopkeeper, the amounts collected across the year are a credit against the income tax worked out on the return for that tax year.

The Finance Act, 2024 removed the list of sectors (pharmaceuticals, edible oil, electronics, cement and others) that section 236H(1) used to name. The section now covers sales to retailers generally. The phrase “in respect of the said sectors” still remains in the part about distributors or dealers selling to another wholesaler, even though the list it referred to has gone. The consolidated text does not explain how that phrase now applies.

Section 236H deductions have a second use since the Finance Act, 2026. Section 2 of the Sales Tax Act, 1990, in the Tier-1 retailer definition, now includes “a retailer having turnover exceeding two hundred million rupees either by way of declaration or from worked back value of turnover from tax deduction under section 236G or 236H” in the preceding twelve months. The 236H tax on a shopkeeper’s purchases can therefore be used to work back turnover for sales tax purposes.

Worked example (illustrative figures)

Rashid runs a grocery store in Faisalabad. In September 2026 he buys stock worth Rs. 800,000 from a distributor.

If Rashid is on the Active Taxpayers’ List:

1. Rate: 0.5%.
2. Rs. 800,000 x 0.5% = Rs. 4,000.

If Rashid is not on the list:

1. Rate: 2.5%.
2. Rs. 800,000 x 2.5% = Rs. 20,000.

The difference for that one month is Rs. 16,000. Whichever amount is collected, section 236H(2) allows it as a credit in computing Rashid’s tax for tax year 2027.

What if my tax for the year is less than the 236H credit?

Section 236H(2) allows credit in computing tax due. It does not describe the tax as final or minimum. Whether an excess can be refunded depends on the general refund rules in the Ordinance, which are outside the scope of this page. If Rashid is off the list and does not file, the Tenth Schedule also contains rules on provisional assessment that can follow from tax collected at the higher rate.

Common mistakes

• Doubling 0.5% to 1% for non-filers. The Tenth Schedule Table sets a specific 2.5% for section 236H, not the general hundred percent increase.
• Treating 236H as a sales tax. It is advance income tax under the Income Tax Ordinance. It is separate from any sales tax on the invoice.
• Quoting an old sector-based rate. Earlier versions of Division XV had different rates for electronics and other goods. The version amended to 30 June 2026 has a single 0.5% rate.
• Confusing 236G with 236H. Section 236G covers sales to distributors, dealers or wholesalers, with its own rates in Division XIV. Section 236H covers sales to retailers.

What to check in the official text

Read section 236H and section 100BA of the Income Tax Ordinance as amended to 30 June 2026, Division XV of Part IV of the First Schedule, and rule 1 with its Table and rule 10 of the Tenth Schedule. For the sales tax effect, read clause (43A) of section 2 of the Sales Tax Act, 1990 as amended to 30 June 2026. Supplier invoices should show the rate actually applied, which can be checked against these entries.