As a distributor, do I have to collect section 236H advance tax when I sell to shopkeepers, and at what rate?

A distributor who sells to shopkeepers is on the collecting side of section 236H. The same business that pays advance tax to its own manufacturer becomes, in its turn, a collector of section 236H when it sells stock on to retailers. This page covers the distributor’s duty. The retailer’s side of the same transaction is covered in the retail shops section of this site.

What does the law say?

Section 236H(1) of the Income Tax Ordinance, 2001 says that every manufacturer, distributor, dealer, wholesaler or commercial importer, at the time of sale to retailers, 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. The same sub-section also covers “every distributor or dealer to another wholesaler in respect of the said sectors”, words inserted by the Finance Act, 2015.

Section 236H(2) gives the retailer the benefit: 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.”

So the distributor is the one who must collect, at the time of sale, and the retailer is the one who bears the tax and later takes credit for it.

What rate does the distributor collect?

These are the rates for tax year 2027 (1 July 2026 to 30 June 2027) in the Ordinance amended to 30 June 2026.

Retailer’s status	Rate	Source
On the Active Taxpayers’ List	0.5% of the gross amount of sales	First Schedule, Part IV, Division XV
Not on the Active Taxpayers’ List	2.5% of the gross amount of sale to retailers	Tenth Schedule, rule 1, third proviso Table, serial 4

Division XV reads: “The rate of collection of tax under section 236H on the gross amount of sales shall be 0.5%.” The higher rate applies through section 100BA, which makes the Tenth Schedule govern collection from persons not appearing on the Active Taxpayers’ List, notwithstanding anything else in the Ordinance.

An older version of Division XV had a separate 1% rate for electronics. The footnote records that it was substituted by the Finance Act, 2021, and the current Division states one rate.

Worked example (illustrative figures)

Ali Distributors supplies biscuits and snacks to shops in Rawalpindi. On one delivery round it sells to three shops. The amounts are invented; the rates are the ones cited above.

Shop	Gross amount of sale	On ATL?	Rate	236H collected
Shop A	Rs. 120,000	Yes	0.5%	Rs. 600
Shop B	Rs. 80,000	No	2.5%	Rs. 2,000
Shop C	Rs. 200,000	Yes	0.5%	Rs. 1,000
Total	Rs. 400,000			Rs. 3,600

Step by step:

1. Shop A: Rs. 120,000 x 0.5% = Rs. 600.
2. Shop B: Rs. 80,000 x 2.5% = Rs. 2,000.
3. Shop C: Rs. 200,000 x 0.5% = Rs. 1,000.
4. Total collected: Rs. 600 + Rs. 2,000 + Rs. 1,000 = Rs. 3,600.

Shop B pays more than three times what Shop A pays in tax, although its purchase is smaller, because it is not on the Active Taxpayers’ List. Each shop can claim credit for the amount collected from it under section 236H(2).

What if the shopkeeper was not required to file a return?

Rule 2 of the Tenth Schedule deals with this. Where the person collecting the tax is satisfied that a person not appearing on the Active Taxpayers’ List was not required to file a return of income, the collector shall, before collecting, give the Commissioner an electronic notice setting out the person’s name, CNIC or NTN and address, the nature and amount of the transaction, and the reason. The Commissioner has thirty days to pass an order. If the Commissioner has reasonable grounds to believe the person was required to file, the Commissioner may direct collection at the rule 1 rate. If no order is passed within thirty days, the contention is treated as accepted.

What if I sell to another wholesaler, not a shop?

Section 236H(1) also covers a distributor or dealer selling “to another wholesaler in respect of the said sectors”. The Finance Act, 2024 omitted the list of sectors that this phrase used to point back to, and the Ordinance does not explain how the leftover phrase now operates. The related page on which goods are covered sets out what the footnotes show.

Common mistakes

• Assuming only the manufacturer collects. Section 236H(1) names distributors, dealers and wholesalers as collectors when they sell to retailers.
• Charging 1% for non-ATL retailers. The Tenth Schedule Table fixes 2.5% for section 236H, not a doubling of 0.5%.
• Using an old sector list. Since the Finance Act, 2024, section 236H(1) names no sectors.
• Treating the tax as the distributor’s income. It is collected from the retailer and, under section 236H(2), belongs to the retailer’s tax computation.

What to check in the official text

Read section 236H and section 100BA, Division XV of Part IV of the First Schedule, and rules 1 and 2 of the Tenth Schedule, in the Ordinance amended to 30 June 2026. What happens if a distributor does not collect or deposit the tax is covered on the related page on failure to collect 236H. Whether a particular shop is on the Active Taxpayers’ List at the date of sale is a matter of the list itself, which is not part of the text held here.