Does minimum tax on turnover under section 113 apply to a retail shop, and at what rate?

Minimum tax under section 113 of the Income Tax Ordinance, 2001 is a floor. When a business’s tax worked out on its profit comes to less than a set percentage of its turnover, the business pays the percentage instead. For many small shops the key point is the threshold: a sole trader or partnership is not covered at all unless turnover reaches Rs. 100 million.

What does the law say?

Section 113(1) applies to:

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

It applies where, because of a loss for the year, a set-off of an earlier loss, an exemption, credits or rebates, or allowances and deductions (including depreciation), no tax is payable or paid, or the tax payable or paid is less than the percentage of turnover in column (3) of the Table in Division IX of Part I of the First Schedule.

Where the section applies, section 113(2) treats the person’s turnover as income and the person pays minimum tax at the Division IX rate “instead of the actual tax payable under this Ordinance”.

What counts as turnover for a shop?

Section 113(3)(a) defines turnover to include gross sales or gross receipts from the sale of goods, exclusive of sales tax and federal excise duty and any trade discounts shown on invoices or bills. It also excludes amounts taken as deemed income and assessed as final discharge of tax liability. The Explanation to section 113(2)(a) adds that turnover covers receipts from all business activities.

The Explanation to section 113(1) says “tax payable or paid” for this comparison does not include tax on deemed income assessed as a final discharge of tax liability, or the two additional taxes it names.

What are the rates for tax year 2027?

The Ordinance as amended to 30 June 2026 gives the rates for tax year 2027 (1 July 2026 to 30 June 2027). The Division IX entries most relevant to a retail shop are:

Serial	Person	Minimum tax as percentage of turnover
3(d)	Tier-1 retailers of fast moving consumer goods who are integrated with Board or its computerized system for real time reporting of sales and receipts	0.25%
4	In all other cases	1.25%

Serial 3 also lists petroleum agents and distributors registered under the Sales Tax Act, rice mills and dealers, persons with turnover from e-commerce supplies, persons dealing in used vehicles, and flour mills, all at 0.25%. The Finance Act, 2026 omitted entry (a) of serial 3, which had covered distributors of pharmaceutical products, fast moving consumer goods and cigarettes. A shop that does not fit a named entry falls under serial 4.

Worked example (illustrative figures)

Tariq Traders is an association of persons running a large grocery store in Faisalabad. Its turnover for tax year 2027 is Rs. 150,000,000 and, because of heavy deductions, the tax worked out on its taxable income is Rs. 900,000. Both figures are invented.

Step 1: does section 113 apply? Turnover of Rs. 150,000,000 is above Rs. 100,000,000, so the AOP is within section 113(1).

Step 2: minimum tax at the “all other cases” rate.

Rs. 150,000,000 x 1.25% = Rs. 1,875,000.

Step 3: compare. Rs. 900,000 is less than Rs. 1,875,000, so the AOP pays Rs. 1,875,000.

Step 4: carry forward. The excess is Rs. 1,875,000 minus Rs. 900,000 = Rs. 975,000. Under section 113(2)(c), that amount is carried forward for adjustment against tax under the relevant Part of the First Schedule in the two tax years immediately following.

Variation: integrated Tier-1 FMCG retailer. If the store were a Tier-1 retailer of fast moving consumer goods integrated with the Board’s system, serial 3(d) would apply: Rs. 150,000,000 x 0.25% = Rs. 375,000. Since Rs. 900,000 is more than Rs. 375,000, it would pay the normal Rs. 900,000 and no minimum tax would arise.

What if my shop’s turnover is below Rs. 100 million?

For an individual or association of persons, section 113(1) reaches only those with turnover of one hundred million rupees or above in tax year 2017 or any subsequent year. The section does not say expressly whether a person who crossed that level in one year remains covered in a later year when turnover falls below it. That point is not resolved here.

What if the business made a loss?

A loss is one of the listed reasons in section 113(1)(a). If a covered shop makes a loss, the proviso to section 113(2)(c) carries forward the entire minimum tax paid, since no tax was otherwise payable.

Common mistakes

• Assuming every shopkeeper pays 1.25% of sales. For individuals and AOPs, the Rs. 100 million turnover test comes first.
• Using an old rate. The footnotes to Division IX show earlier tables that have since been substituted. The current “all other cases” rate is 1.25%.
• Assuming FMCG distributors still get 0.25%. Entry 3(a) was omitted by the Finance Act, 2026. The 0.25% for FMCG in serial 3(d) is for integrated Tier-1 retailers.
• Assuming a five-year carry forward. The proviso to section 113(2)(c) now says two tax years.

What to check in the official text

Read section 113, and the Table in Division IX of Part I of the First Schedule with its footnotes, in the Income Tax Ordinance amended to 30 June 2026. Section 5 of the Finance Act, 2026 shows the omission of entry 3(a). If relying on serial 3(d), check Tier-1 status under clause (43A) of section 2 of the Sales Tax Act and whether integration with the Board’s system is in place.