Does the 90% input tax limit in section 8B apply to distributors?

A distributor’s margin is thin, so the input tax on stock bought from manufacturers is often close to the output tax on sales. Section 8B of the Sales Tax Act, 1990 stops that input tax from wiping out the whole monthly liability: at least ten per cent of output tax is paid in cash each tax period, unless an exception applies.

What does section 8B say?

Section 8B(1) opens with “Notwithstanding anything contained in this Act” and says that, in relation to a tax period, a registered person “shall not be allowed to adjust input tax in excess of ninety per cent of the output tax for that tax period”. The subsection applies to “a registered person”. It does not carve out distributors, wholesalers or any trade. A footnote records that some words after “a registered person” were omitted by the Finance Act, 2022; the consolidated text does not reproduce what they were.

Three provisos follow:

• Capital goods. The restriction “shall not apply in case of fixed assets or Capital goods”.
• Exclusion by the Board. The Board may, by notification in the official Gazette, exclude any person or class of persons from subsection (1).
• Compliance-linked limits. Added by the Finance Act, 2026, the Board may by notification reduce or enhance the limit for any registered person based on compliance or non-compliance with production monitoring, digital invoicing, e-bility, POS or any other electronic system the Board prescribes.

Section 8B(4) adds that the Board may prescribe any other limit for any person or class of persons, and may use a data-based automated risk management system to defer input tax or fix higher or lower limits. A registered person may contest such action by application to the Commissioner, who is to decide within thirty days.

Section 7(1) confirms the link: the right to deduct input tax is “Subject to the provisions of section 8 and 8B”.

How does it work in practice?

Each month, the distributor works out output tax on its taxable supplies and the input tax it is otherwise entitled to under sections 7 and 8. If input tax is more than 90% of output tax, only the 90% figure is adjusted that month. The rest does not vanish:

• Carry forward under section 10. The first proviso to section 10(1) says excess input tax on supplies other than zero-rated or exports may be carried forward to the next tax period, “along with the input tax as is not adjustable in terms of sub-section (1) of section 8B”, and is treated as input tax for that period.
• Yearly adjustment or refund under section 8B(2) and (3). A registered person whose accounts are audited under the Companies Ordinance, 1984 may be allowed adjustment or refund on furnishing a statement with annual audited accounts, certified by the auditors, showing value additions below the limit. Other registered persons, such as a sole proprietor or a partnership distributor, are subject to conditions the Board specifies by notification. Section 8B(3) says the adjustment or refund is made yearly, in the second month following the end of the registered person’s financial year.

Section 8B(5) refers an auditor found guilty of misconduct in giving that certificate to the Council under the Chartered Accountants Ordinance, 1961.

Worked example (illustrative figures)

Rehman Traders, a registered FMCG distributor in Faisalabad, has these figures for one month. The amounts are invented; the 90% limit is from section 8B(1).

Step	Amount
Output tax on the month’s taxable supplies	Rs. 1,200,000
Input tax on stock purchases, all admissible under sections 7 and 8	Rs. 1,140,000
90% of output tax (1,200,000 x 90 / 100)	Rs. 1,080,000
Input tax adjusted this month (lower of 1,140,000 and 1,080,000)	Rs. 1,080,000
Sales tax payable (1,200,000 - 1,080,000)	Rs. 120,000
Input tax not adjusted (1,140,000 - 1,080,000)	Rs. 60,000

Check: 1,080,000 + 60,000 = 1,140,000, and 1,080,000 + 120,000 = 1,200,000.

The Rs. 60,000 is carried to the next tax period under the section 10 proviso and treated as input tax for that period. The Act does not spell out the order of calculation, but because the carried amount is “treated as input tax for that period”, it forms part of the next month’s input tax to which the 90% test is again applied.

What if …?

What if I am a wholesaler-cum-retailer? Section 2(43A)(d) treats as a Tier-1 retailer a wholesaler-cum-retailer with turnover above two hundred million, “engaged in bulk import and supply of consumer goods on wholesale basis to the retailers as well as on retail basis to the general body of the consumers”. Section 8B(6) says that if a Tier-1 retailer does not integrate its retail outlet as the Act requires during a tax period or part of it, its adjustable input tax for the whole of that period is reduced by 60%.

What if the Board has excluded distributors? An exclusion under the second proviso would be a Board notification. No such notification is part of the text held on this site, so this page cannot say whether any distributor or class of distributors is currently excluded.

What if my sales include further tax? Section 7(1) lets input tax be deducted from output tax “excluding the amount of further tax”. Section 8B itself does not say whether further tax is counted in the “output tax” used for the 90% test. The text does not settle that point.

Common mistakes

• Treating the capped amount as lost. Section 10 carries it forward; section 8B(2) and (3) give a yearly route.
• Applying the cap to inadmissible input tax. Section 8B limits input tax that is otherwise adjustable. Input tax barred by section 8, such as tax on fake invoices, is not adjustable at any percentage.
• Assuming the six-period window extends the cap. The proviso to section 7(1) lets missed input tax be claimed in any of the six succeeding tax periods. It concerns timing of a claim, not the 90% limit.

What to check in the official text

Read sections 7, 8B and 10 of the Sales Tax Act, 1990 as amended to 30 June 2026, and section 2(43A) if you also sell at retail. Any Board notification excluding persons from section 8B(1), changing the limit for a person, or setting conditions under section 8B(2)(ii) for non-company distributors is outside the text held here.