How is sales tax collected from a small shop through its electricity bill, and is it 5% or 7.5%?

Small shops do not charge sales tax item by item the way a large store does. The Sales Tax Act, 1990 collects their sales tax through the shop’s monthly electricity bill instead, at one of two rates set by the size of that bill.

What does the law say?

Section 3(9), substituted by the Tax Laws (Second Amendment) Ordinance, 2022 with effect from 1 July 2022, says that notwithstanding section 3(1), tax “shall be charged from retailers, other than those falling in Tier-1, through their monthly electricity bills”. It sets two rates:

Monthly electricity bill amount	Rate under section 3(9)
Does not exceed Rs. 20,000	5 percent
Exceeds Rs. 20,000	7.5 percent

Three further points sit in the same sub-section:

• Collected by the electricity supplier. The supplier deposits the amount collected directly, “without adjusting against his input tax”.
• On top of ordinary electricity tax. The first proviso says this tax is in addition to the tax payable on the supply of electricity under sections 3(1), 3(1A) and 3(5). So a shop’s bill carries the normal sales tax on electricity and, separately, the retailer’s tax under section 3(9).
• Exclusion order. The second proviso directs the Commissioner Inland Revenue with jurisdiction to order the electricity supplier to exclude a person who is a Tier-1 retailer or is not a retailer at all.

Can the Government change the 5% and 7.5%?

Yes. Section 3(12), added by the same 2022 Ordinance, lets the Federal Government, by notification in the official Gazette, levy and collect tax from retailers other than Tier-1 through their monthly electricity bill “in lieu of or in addition to” the tax under section 3(9). The notification can set the amount, rate, starting date, mode, manner and time of payment, and different rates or amounts for different classes of person. Notifications under section 3(12) are not held in this corpus, so check whether one is in force before relying on the rates in the table above.

Who counts as a retailer outside Tier-1?

Section 2(28) defines a retailer as a person supplying goods to the general public for consumption. Section 2(43A) then lists the Tier-1 categories, which include a unit of a chain of stores, a shop in an air-conditioned mall (kiosks excluded), a retailer whose cumulative electricity bill over the preceding twelve consecutive months exceeds Rs. 1,200,000, and a retailer with turnover above two hundred million rupees. A retailer that falls in none of the categories is dealt with under section 3(9).

The electricity test matters here. A shop paying through its bill under section 3(9) moves into Tier-1 under section 2(43A)(c) once its bills over twelve consecutive months add up to more than Rs. 1,200,000. At that point section 3(9) no longer applies and section 3(9A) does.

Worked example (illustrative figures)

Three shops in Multan, none of them Tier-1. The percentage is applied to the monthly bill amount, which is the figure section 3(9) uses to pick the rate (see the note below on what “bill amount” includes).

1. Grocery shop, bill Rs. 18,000. Does not exceed Rs. 20,000, so 5 percent. Rs. 18,000 x 5% = Rs. 900.
2. Mobile accessories shop, bill exactly Rs. 20,000. “Does not exceed” includes the limit itself, so 5 percent. Rs. 20,000 x 5% = Rs. 1,000.
3. Tailor’s fabric shop, bill Rs. 26,000. Exceeds Rs. 20,000, so 7.5 percent. Rs. 26,000 x 7.5% = Rs. 1,950.

Now the edge of the band. A bill of Rs. 20,500 exceeds Rs. 20,000, so 7.5 percent applies: Rs. 20,500 x 7.5% = Rs. 1,537.50. A Rs. 500 larger bill than shop 2 produces Rs. 537.50 more tax, because section 3(9) switches the rate for the whole bill rather than working in slabs.

For the Tier-1 test: if the fabric shop’s bill were Rs. 26,000 every month, twelve months would total Rs. 312,000. That is well below Rs. 1,200,000, so section 2(43A)(c) does not make it Tier-1.

What does “monthly bill amount” include?

The Act does not say. Section 3(9) uses “monthly bill amount” both for the Rs. 20,000 test and, by implication, as the base for the percentage, but it does not state whether the amount is before or after the other taxes and charges on the bill. This page does not resolve that point. The electricity supplier’s own computation, and any notification under section 3(12), would need to be checked.

What if the shop also sells online?

Section 3(7A) says that for taxable supplies of digitally ordered goods, tax withheld under the Eleventh Schedule by the payment intermediary or courier is final discharge of tax liability for retailers other than Tier-1 retailers. Section 14(1A) also leaves retailers paying through electricity bills under section 3(9) out of the registration requirement for sellers of digitally ordered goods. The Eleventh Schedule rates are outside this page.

Common mistakes

• Treating the retail tax as the normal sales tax on electricity. The first proviso to section 3(9) makes it an extra charge in addition to that tax.
• Applying 7.5 percent only to the excess over Rs. 20,000. The wording picks one rate by the size of the bill.
• Assuming the scheme applies forever. Once twelve months of bills exceed Rs. 1,200,000 in total, section 2(43A)(c) makes the shop Tier-1.
• Confusing this with income tax on the bill. Advance income tax collected with electricity bills is a separate levy under the Income Tax Ordinance, 2001 and is covered in a separate page.

What to check in the official text

Read section 3(9) and 3(12) of the Sales Tax Act as amended to 30 June 2026, the definitions of “retailer” in section 2(28) and “Tier-1 retailer” in section 2(43A), and the exclusion in section 14(1)(b). Any Federal Government notification under section 3(12), and any Commissioner’s exclusion order under the second proviso to section 3(9), sit outside this corpus.