Does minimum tax on turnover apply to a partnership firm?

Minimum tax is a floor on the income tax a large firm pays. Once a partnership firm’s turnover reaches Rs. 100 million, a year of low profit or a loss does not bring its income tax to zero: section 113 makes it pay a fixed percentage of turnover instead. The rates for tax year 2027 are in Division IX of Part I of the First Schedule.

What does the law say?

Who is covered. Section 113(1) applies to a resident company, a permanent establishment of a non-resident company, an individual, and an association of persons “having turnover of hundred million rupees or above in the tax year 2017 or in any subsequent tax year”. A partnership firm is an association of persons for tax purposes.

When it bites. The section applies where, for any reason allowed under the Ordinance or any other law, including:

• (a) a loss for the year;
• (b) setting off a loss of an earlier year;
• (c) exemption from tax;
• (d) credits or rebates; or
• (e) allowances or deductions, including depreciation and amortization,

no tax is payable or paid, or the tax payable or paid is less than the percentage in column (3) of the Division IX Table applied to the firm’s turnover from all sources.

What the firm pays. Under section 113(2), the firm’s turnover is treated as its income for the year, and the firm pays as income tax “instead of the actual tax payable under this Ordinance” the minimum tax computed at the Division IX rates.

What is not counted as tax paid. An Explanation to section 113(1) says “tax payable or paid” does not include tax on deemed income assessed as a final discharge of liability, or tax payable or paid under certain other charging provisions, including the super tax under section 4C. So super tax does not help a firm clear the minimum tax floor.

What counts as turnover?

Section 113(3) defines turnover as:

• (a) gross sales or gross receipts from the sale of goods, excluding sales tax, federal excise duty and trade discounts shown on invoices or bills, and excluding amounts taken as deemed income under a final tax regime;
• (b) gross fees for rendering services, including commissions, except those covered by a separate final tax;
• (c) gross receipts from executing contracts, except those covered by a separate final tax; and
• (d) a company’s share of such amounts of any AOP 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 the sale of immoveable property where taxed as business income.

What are the rates for tax year 2027?

The Division IX Table, as it stands after the Finance Act, 2026:

S. No.	Persons	Minimum tax as % of turnover
1	(a) Sui Southern Gas Company Limited and Sui Northern Gas Pipelines Limited (turnover above Rs. 1 billion); (b) Pakistani International Airlines Corporation; (c) poultry industry, including breeding, broiler, egg and feed production	0.75%
2	(a) Oil refineries; (b) motorcycle dealers registered under the Sales Tax Act, 1990; (c) oil marketing companies	0.5%
3	(b) Petroleum agents and distributors registered under the Sales Tax Act, 1990; (c) rice mills and dealers; (d) Tier-1 retailers of fast moving consumer goods integrated with the Board’s system; (e) turnover from supplies through e-commerce, including an online marketplace; (f) persons dealing in used vehicles; (g) flour mills	0.25%
4	In all other cases	1.25%

Entry 3(a), which covered distributors of pharmaceutical products, fast moving consumer goods and cigarettes, was omitted by the Finance Act, 2026. Those distributors now fall under “In all other cases” unless another entry fits.

Worked example (illustrative figures)

Awan Traders, a partnership selling building materials in Rawalpindi, has turnover for tax year 2027 of Rs. 150,000,000, excluding sales tax. After depreciation and expenses it makes a loss, so its normal income tax is nil.

1. Turnover is above Rs. 100 million, so section 113 applies to the firm.
2. Building materials do not fall within entries 1 to 3, so the rate is 1.25% under entry 4.
3. Minimum tax: Rs. 150,000,000 x 1.25% = Rs. 1,875,000.
4. The firm pays Rs. 1,875,000 as its income tax for tax year 2027.
5. Because the tax was paid “due to the fact that no tax is payable or paid for the year”, the proviso to section 113(2)(c) lets the entire Rs. 1,875,000 be carried forward.
6. It can be adjusted against tax liability under clause (1) of Division I or Division II of Part I of the First Schedule in tax years 2028 and 2029 only.

If the same firm were a rice dealer, entry 3(c) would apply: Rs. 150,000,000 x 0.25% = Rs. 375,000.

What if …?

What if normal tax is positive but below the floor? Say normal tax is Rs. 1,000,000 against a minimum of Rs. 1,875,000. The firm pays the minimum. Section 113(2)(c) carries forward the excess of the minimum over the actual tax payable, here Rs. 875,000, on the same two-year basis.

What if turnover drops below Rs. 100 million in a later year? The test in section 113(1) is turnover of Rs. 100 million or more “in the tax year 2017 or in any subsequent tax year”. The words do not expressly say whether a firm that crossed the threshold once stays covered in a later year when turnover falls, so this point is not settled on the face of the text.

What if a company is a partner? Section 113(3)(d) includes in a company’s turnover its share of the turnover of an AOP of which it is a member. That share is counted for the company’s own minimum tax.

Common mistakes

• Counting sales tax in turnover. Section 113(3)(a) excludes sales tax and federal excise duty.
• Using 1.5%. The rate in all other cases is now 1.25%. The 1.5% figure appears only in a superseded table printed in the footnotes.
• Treating super tax as meeting the floor. The Explanation to section 113(1) excludes tax under section 4C.
• Carrying the excess forward indefinitely. The period is two tax years since the Finance Act, 2025.

What to check in the official text

Read section 113(1), (2) and (3) with both Explanations. The Division IX Table is badly broken in the extracted text because superseded tables are printed alongside it, so confirm the current Table in the official PDF. Check which entry describes your trade before applying a rate.