What is minimum tax on turnover under section 113, what counts as turnover, and what rate does a company pay?

Minimum tax is a floor. A company that reports little or no taxable income still pays a small percentage of its turnover. Section 113 of the Income Tax Ordinance, 2001 sets the rule, and Division IX of Part I of the First Schedule sets the percentages. This page uses the Ordinance as amended to 30 June 2026.

What does the law say?

Section 113(1) applies to a resident company, a permanent establishment of a non-resident company, and to individuals and associations of persons with turnover of one hundred million rupees or more in tax year 2017 or any later year. It bites where, for any reason allowed under the Ordinance or any other law, including:

• a loss for the year;
• setting off a loss of an earlier year;
• exemption from tax;
• credits or rebates; or
• allowances or deductions, including depreciation and amortisation,

no tax is payable, or the tax payable is less than the Division IX percentage of the company’s turnover from all sources.

Where it applies, section 113(2) treats the company’s turnover as its income chargeable to tax, and the company pays minimum tax at the Division IX rate “instead of the actual tax payable”.

For this comparison, the Explanation to section 113(1) says “tax payable or paid” does not include tax on deemed income assessed as a final discharge, or super tax. So super tax under section 4C does not help a company clear the minimum tax floor.

What counts as turnover?

Section 113(3) defines turnover as:

1. Sales of goods: gross sales or gross receipts, exclusive of sales tax and federal excise duty, and exclusive of trade discounts shown on invoices or bills. Amounts taken as deemed income and assessed as a final discharge of tax liability are also left out.
2. Services: gross fees for rendering services or giving benefits, including commissions, except those covered by a final discharge of tax liability for which tax is separately paid or payable.
3. Contracts: gross receipts from executing contracts, with the same exception for final tax receipts.
4. Share of an AOP: the company’s share of the above amounts of any association of persons of which it is a member.

An Explanation to section 113(2)(a) adds that turnover covers receipts from all business activities, including receipts from sale of immovable property where these are taxable under the head Income from Business.

What rate applies?

The Division IX Table, as printed in the consolidated source, reads in outline:

S. No.	Persons	Minimum tax as % of turnover
1	Sui Southern Gas Company Limited and Sui Northern Gas Pipelines Limited (annual turnover above Rs. 1 billion), Pakistan International Airlines Corporation, poultry industry (see the note below on this row)	0.75%
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 FMCG retailers integrated with the Board’s system, e-commerce and online marketplace turnover, used vehicle traders, flour mills	0.25%
4	In all other cases	1.25%

Most manufacturing, trading and services companies fall in serial 4 at 1.25%. The Finance Act, 2026 omitted the old entry for distributors of pharmaceutical products, fast moving consumer goods and cigarettes from serial 3. Clause (24D) of Part II of the Second Schedule now sets 0.5% for distributors, dealers, sub-dealers and wholesalers of listed goods (including pharmaceuticals, fertilizer, cigarettes, sugar, electronics, beverages and packaged foods), provided they appear on the active taxpayers’ lists under both the Sales Tax Act, 1990 and the Ordinance.

Worked example (illustrative figures)

Gujranwala Ceramics (Pvt) Ltd, an ordinary resident company, for tax year 2027:

1. Invoiced sales including sales tax: Rs. 590,000,000. Sales tax on those invoices: Rs. 90,000,000. Trade discounts shown on invoices: Rs. 10,000,000.
2. Turnover from sales: Rs. 590,000,000 - Rs. 90,000,000 - Rs. 10,000,000 = Rs. 490,000,000.
3. Commission earned as a sales agent: Rs. 10,000,000. Total turnover: Rs. 500,000,000.
4. Minimum tax at 1.25%: Rs. 500,000,000 x 1.25% = Rs. 6,250,000.
5. Normal tax: taxable income after heavy depreciation is Rs. 15,000,000; at 29% that is Rs. 4,350,000.
6. Rs. 4,350,000 is less than Rs. 6,250,000, so the company pays Rs. 6,250,000.
7. The excess, Rs. 6,250,000 - Rs. 4,350,000 = Rs. 1,900,000, is carried forward under section 113(2)(c) for adjustment against Division II tax in tax years 2028 and 2029.

If the company had a loss and no tax payable at all, the first proviso to section 113(2)(c) carries forward the whole Rs. 6,250,000.

What if …?

What if Alternative Corporate Tax is higher still? Section 113C makes a company’s tax the higher of corporate tax (itself the higher of Division II tax and minimum tax) and Alternative Corporate Tax on accounting income. Minimum tax is therefore not always the last step.

What if the company is a member of a partnership? Section 113(3)(d) adds the company’s share of the AOP’s turnover to its own.

What if some sales suffered a final tax? Turnover excludes amounts assessed as a final discharge of tax liability, so those sales stay out of the section 113 base.

Common mistakes

• Calculating 1.25% on invoice value including sales tax. Sales tax, federal excise duty and invoiced trade discounts are excluded.
• Counting super tax towards the floor. The Explanation to section 113(1) excludes it.
• Carrying the excess forward indefinitely. Section 113(2)(c) allows two tax years; the period was three before the Finance Act, 2025.
• Leaving out commission, contract receipts or AOP share. Section 113(3)(b) to (d) include them.

What to check in the official text

The Division IX Table is badly laid out in the consolidated source: part of serial 1 runs across a page break and some entries may not have survived extraction. Confirm the full list of sectors and rates in the official PDF of the Ordinance before relying on a reduced rate. Read section 113 in full, clause (24D) of Part II of the Second Schedule for its conditions, and check for any notification that changes the rates, which this corpus does not hold.