What happens to a distributor who fails to collect or deposit 236G or 236H tax?

When a law makes a seller collect tax from its buyer, the seller becomes a collecting agent for the state. The Income Tax Ordinance, 2001 attaches consequences to getting that wrong, and they fall mainly on the seller rather than on the buyer who was meant to bear the tax.

Who has to collect the tax?

Section 236G(1) requires every manufacturer or commercial importer to collect advance tax when selling to distributors, dealers and wholesalers. Section 236H(1) requires every manufacturer, distributor, dealer, wholesaler or commercial importer to collect advance tax when selling to retailers, and every distributor or dealer to collect it when selling to another wholesaler “in respect of the said sectors”. The rates are in Divisions XIV and XV of Part IV of the First Schedule. For section 236H the Division XV rate is 0.5% of the gross amount of sales.

Section 160 then requires tax collected under Chapter XII, which contains both sections, to be paid to the Commissioner “within the time and in the manner as may be prescribed”.

What does section 161 do to the seller?

Section 161(1) covers two failures:

1. failing to collect tax as required under Chapter XII; or
2. having collected it, failing to pay it to the Commissioner as section 160 requires.

In either case “the person shall be personally liable to pay the amount of tax to the Commissioner”, who may pass an order and recover it. The protections and adjustments around that liability are:

• Hearing first. Section 161(1A) bars recovery unless the person has had an opportunity of being heard.
• Buyer has since paid. Section 161(1B) says that if, at the time of recovery, the tax has meanwhile been paid by the buyer, no recovery is made from the seller. The seller instead pays default surcharge at twelve per cent per annum from the date it failed to collect to the date the tax was paid.
• Right to recover from the buyer. Section 161(2) entitles a seller made liable for failing to collect to recover the tax from the person it should have been collected from.
• Amendment of the order. Section 161(3) lets the Commissioner amend a recovery order found erroneous and prejudicial to revenue, again after a hearing.

Can FBR go after the buyer instead?

Section 162(1) lets the Commissioner pass an order and recover the uncollected amount directly “from the person from whom the tax should have been collected”. Section 162(2) adds that recovery from the buyer does not absolve the person who failed from other legal action or from default surcharge.

Is there a penalty?

S. No. 15 of the table in section 182(1) applies to any person who fails to collect or deduct tax as required, or fails to pay collected tax as required under section 160. Chapter XII is among the provisions listed against it. The penalty is forty thousand rupees or 10% of the amount of tax, whichever is higher.

Worked example (illustrative figures)

Rehman Distributors in Gujranwala sells Rs. 8,000,000 of goods to retailers on the Active Taxpayers’ List during a quarter of tax year 2027 and collects no 236H tax. All figures are invented; the rates are the ones cited on this page.

1. Tax that should have been collected at 0.5%: Rs. 8,000,000 x 0.5% = Rs. 40,000.
2. Personal liability under section 161(1): Rs. 40,000.
3. Penalty under S. No. 15: the higher of Rs. 40,000 or 10% x Rs. 40,000 = Rs. 4,000. The penalty is Rs. 40,000.

Now suppose the retailers had already paid the Rs. 40,000 themselves, six months after the date Rehman Distributors failed to collect it. Section 161(1B) then stops recovery of the tax from the distributor and substitutes default surcharge:

4. Rs. 40,000 x 12% x 6/12 = Rs. 2,400.

What if the tax was collected but not deposited?

This is the second limb of section 161(1). The seller holds money that section 168 treats as the buyer’s tax paid, so the buyer is entitled to credit for it. The seller is personally liable for the full amount and falls within the same penalty entry, which names failure to pay under section 160.

Common mistakes

• Treating 236H as the retailer’s problem. The duty to collect is on the seller, and section 161 makes the seller personally liable.
• Assuming a later payment by the buyer ends the matter. Section 161(1B) stops recovery of the tax but leaves default surcharge running from the date of failure.
• Collecting and holding the tax. Collection without payment under section 160 is a separate failure under section 161(1)(b).
• Ignoring buyers not on the Active Taxpayers’ List. The Tenth Schedule sets a higher rate for them, so the amount at risk is larger. The related page on that rate explains it.

What to check in the official text

Read sections 160, 161, 162, 182 and 236H of the Ordinance amended to 30 June 2026, and Division XV of Part IV of the First Schedule. Section 236H(1) still refers to sales by a distributor or dealer to another wholesaler “in respect of the said sectors”, although the list of sectors it once referred to was omitted by the Finance Act, 2024. The text does not say what that phrase now covers. The time and manner of payment under section 160 are prescribed in rules and are not covered on this page.