What is minimum tax on turnover under section 113, and do I have to pay it even if my business made a loss?

What does the law say?

Section 113 of the Income Tax Ordinance, 2001 sets a floor on the income tax of certain persons. For individuals, sub-section (1) applies to “an individual (having turnover of hundred million rupees or above in the tax year 2017 or in any subsequent tax year)”. The same wording covers associations of persons.

The section bites where, for one of five reasons, “no tax is payable or paid by the person for a tax year or the tax payable or paid by the person for a tax year is less than” the percentage of turnover in Division IX of Part I of the First Schedule. The five reasons are:

• (a) a loss for the year;
• (b) setting off a loss of an earlier year;
• (c) exemption from tax;
• (d) credits or rebates;
• (e) allowances or deductions, including depreciation and amortization.

Where it applies, section 113(2)(b) says the person “shall pay as income tax for the tax year (instead of the actual tax payable under this Ordinance)” the minimum tax at the Division IX rate.

How does it work in practice?

Each year there are two figures to compare:

1. Normal tax: tax on taxable income under clause (1) of Division I, the slab table for individuals other than salaried individuals.
2. Minimum tax: the Division IX percentage multiplied by turnover. For most businesses this is the “in all other cases” rate, currently 1.25%. Lower rates for listed sectors are on the sector rates page.

If normal tax is lower, the person pays minimum tax. The Explanation to section 113(1) says “tax payable or paid” does not include final tax on deemed income or the two super taxes the Ordinance charges separately, so those amounts do not count toward reaching the minimum.

“Turnover” is defined in section 113(3). For goods it is gross sales or gross receipts, exclusive of sales tax, federal excise duty and trade discounts shown on invoices. For services it is gross fees, and for contracts, gross receipts. Receipts already under final tax are left out.

What happens to the extra tax?

Section 113(2)(c) says that where tax paid under sub-section (1) exceeds the actual tax payable under clause (1) of Division I, “the excess amount of tax paid shall be carried forward for adjustment against tax liability under the aforesaid Part of the subsequent tax year”. Where minimum tax was paid because no tax was payable at all, the first proviso carries forward the entire amount.

The second proviso limits this to two tax years immediately after the year of payment. The footnotes show the period used to be five years, and that the Finance Act, 2025 replaced the word “three” with “two”. Figures of five or three years are out of date.

Worked example (illustrative figures)

Adeel sells tiles and sanitaryware in Gujranwala as a sole proprietor. His business falls in “all other cases” in Division IX, so the rate is 1.25%.

Year 1 (tax year 2027): a loss year. Turnover Rs. 150,000,000. After expenses he has a loss of Rs. 2,000,000, so normal tax is nil.

1. Minimum tax: 1.25% of Rs. 150,000,000 = Rs. 1,875,000.
2. He pays Rs. 1,875,000.
3. Because no tax was payable, the whole Rs. 1,875,000 is carried forward for tax years 2028 and 2029.

A different year: profit, but low tax. Turnover Rs. 120,000,000 and taxable income Rs. 4,000,000.

1. Normal tax on the clause (1) table: Rs. 650,000 + 40% of Rs. 800,000 = Rs. 970,000.
2. Minimum tax: 1.25% of Rs. 120,000,000 = Rs. 1,500,000.
3. Normal tax is lower, so he pays Rs. 1,500,000.
4. Excess carried forward: Rs. 1,500,000 minus Rs. 970,000 = Rs. 530,000.

Section 113(2)(c) does not spell out whether the carried-forward amount can reduce a later year’s tax below that later year’s own minimum tax.

What if my turnover fell below Rs. 100 million this year?

The wording is “turnover of hundred million rupees or above in the tax year 2017 or in any subsequent tax year”. It can be read as looking at each year on its own, or as bringing a person in for good once the figure has been reached in any year since 2017. The section does not say which reading is right, and this page does not settle it.

What if I am an SME?

Rule 7 of the Fourteenth Schedule, which sets out the regime for small and medium enterprises, says that section 113 does not apply to SMEs. Whether a business qualifies is covered on the SME page.

Common mistakes

• “No profit, no tax.” Section 113(1)(a) is written for exactly the loss case.
• Using 1% or 1.5%. Those figures come from older text shown in footnotes. The current “all other cases” rate is 1.25%.
• Counting on a long carry-forward. It is two tax years under the current text.

What to check in the official text

Read section 113 in full, including the Explanation to sub-section (1) and the provisos to sub-section (2)(c). The Division IX table is in the official PDF amended to 30 June 2026, as our site copy leaves out tables. The Second Schedule contains clauses that change the minimum tax rate or exclude section 113 for particular persons, and those are worth reading for your trade.