What is the minimum tax on turnover for distributors and wholesalers in tax year 2027?

Distributors often work on thin margins, so their tax on profit can be small compared with their sales. Section 113 of the Income Tax Ordinance, 2001 puts a floor under that tax by linking it to turnover. For tax year 2027 (1 July 2026 to 30 June 2027), the Finance Act, 2026 changed the rate most distributors face.

Who does section 113 apply to?

Section 113(1) covers:

• every resident company and permanent establishment of a non-resident company; and
• an individual or association of persons “having turnover of hundred million rupees or above in the tax year 2017 or in any subsequent tax year”.

The section applies where, because of a loss, a brought-forward loss, an exemption, credits or rebates, or allowances and deductions, the tax payable for the year is nil or less than the Division IX percentage of turnover. The Explanation to sub-section (1) leaves out final tax on deemed income and tax under sections 4B and 4C when measuring the tax payable.

The wording “in the tax year 2017 or in any subsequent tax year” does not say in terms whether crossing Rs. 100 million in one year brings a person within the section for later years with lower turnover. This page does not resolve that.

What counts as turnover?

Section 113(3)(a) defines turnover for goods as gross sales or gross receipts, exclusive of sales tax, federal excise duty and trade discounts shown on invoices or bills, and excluding amounts taxed as final discharge of tax liability. Section 113(2)(a) adds an Explanation that turnover covers receipts from all business activities.

What are the rates for tax year 2027?

Division IX of Part I of the First Schedule, as amended to 30 June 2026, includes these entries relevant to traders:

S. No. in Division IX	Persons	Rate of turnover
2	Oil refineries, motorcycle dealers registered under the Sales Tax Act, 1990, oil marketing companies	0.5%
3	Petroleum agents and distributors registered under the Sales Tax Act, 1990; rice mills and dealers; Tier-1 retailers of fast moving consumer goods integrated with the Board; e-commerce turnover; used vehicle traders; flour mills	0.25%
4	In all other cases	1.25%

Until 30 June 2026, entry (a) of S. No. 3 read “Distributors of pharmaceutical products, fast moving consumer goods and cigarettes” at 0.25%. The Finance Act, 2026 omitted that entry. A distributor that is not named elsewhere in the table now falls in S. No. 4 at 1.25%.

S. No. 1 of the table (0.75% in the extracted text) is only partly legible in the copy of the source this page relies on. A fertilizer dealer or distributor should read S. No. 1 in the official PDF before relying on any rate.

What does clause (24D) reduce it to?

Clause (24D) of Part II of the Second Schedule, as substituted by the Finance Act, 2026, sets minimum tax under section 113(1) at 0.5% for distributors, dealers, sub-dealers and wholesalers of the goods in its Table, on condition that they appear on the Active Taxpayers’ Lists under both the Sales Tax Act, 1990 and the Income Tax Ordinance, 2001. The Table lists:

1. Pharmaceutical
2. Fertilizer
3. Cigarette
4. Sugar
5. Locally manufactured mobile phones
6. Fresh and frozen food in canned or packaged form
7. Electronics
8. Beverages and dairy products
9. Pasta, cereals, biscuits, nuts, snacks and similar packaged food items
10. Condiments and baking items in bottled or packaged form
11. Skincare and cosmetics, haircare, oral care, baby care
12. Cleaning agents like laundry detergents, dishwashing soaps and floor cleaners
13. Toilet paper, paper towels, facial tissues, napkins and similar products
14. Trash bags, aluminum foil, air freshener and insect sprays

The clause it replaced set 0.25% and named cement, steel and edible oil, and retailers. Those do not appear in the new clause.

Worked example (illustrative figures)

Siddiqui Distributors, a sole proprietor in Karachi, has tax year 2027 turnover of Rs. 250,000,000 after excluding sales tax. Tax on taxable income under the normal rates is assumed at Rs. 900,000. Only the rates are real.

Case A: sells packaged snacks and beverages, on both Active Taxpayers’ Lists.

1. Clause (24D) rate: 0.5%.
2. Minimum tax: Rs. 250,000,000 x 0.5% = Rs. 1,250,000.
3. Normal tax of Rs. 900,000 is less, so section 113(2)(b) makes Rs. 1,250,000 payable.

Case B: sells hardware items not in the clause (24D) Table.

1. Division IX, S. No. 4: 1.25%.
2. Minimum tax: Rs. 250,000,000 x 1.25% = Rs. 3,125,000.
3. Rs. 3,125,000 is payable instead of Rs. 900,000.

In both cases the difference over normal tax (Rs. 350,000 in Case A, Rs. 2,225,000 in Case B) is dealt with under section 113(2)(c), explained on the related carry-forward page.

Common mistakes

• Using the old 0.25% distributor rate for tax year 2027. That entry was omitted by the Finance Act, 2026.
• Claiming 0.5% while on only one list. Clause (24D) requires both Active Taxpayers’ Lists.
• Including sales tax in turnover. Section 113(3)(a) excludes it.

What to check in the official text

Read section 113, Division IX of Part I of the First Schedule and clause (24D) of Part II of the Second Schedule, all as amended to 30 June 2026, and the Finance Act, 2026 amendments to both. Confirm whether your goods fall in a clause (24D) Table entry; the clause does not define its descriptions further.