Why does my supplier collect advance tax under section 236H when I buy stock, and at what rate?

When a shopkeeper buys stock from a manufacturer, distributor, dealer, wholesaler or commercial importer, the supplier adds income tax to the invoice because section 236H of the Income Tax Ordinance, 2001 obliges the supplier to collect it. The retailer is the one who bears it, but it is not lost: the law treats it as an advance payment of the retailer’s own income tax.

What does the law say?

Section 236H(1) says every manufacturer, distributor, dealer, wholesaler or commercial importer, at the time of sale to retailers, and every distributor or dealer to another wholesaler “in respect of the said sectors”, shall collect advance tax at the rate specified in Division XV of Part IV of the First Schedule from the person to whom the sale is made.

Section 236H(2) says credit for the tax collected “shall be allowed in computing the tax due by the retailer on the taxable income for the tax year in which the tax was collected.”

The section once named specific sectors (pharmaceuticals, edible oil and ghee, electronics, cement and others). The footnote records that the Finance Act, 2024 omitted that list, so the collection duty on sales to retailers is no longer limited to named sectors. The phrase “in respect of the said sectors”, which governs sales by a distributor or dealer to another wholesaler, still appears in the text even though the sector list it points back to has been omitted. The Ordinance does not explain how that phrase now operates.

What rate applies for tax year 2027?

The rates in the Ordinance as amended to 30 June 2026 apply to tax year 2027 (1 July 2026 to 30 June 2027).

Retailer’s status	Rate on gross amount of sale	Source
On the Active Taxpayers’ List	0.5%	First Schedule, Part IV, Division XV
Not on the Active Taxpayers’ List	2.5%	Tenth Schedule, rule 1, third proviso, Table serial 4

Division XV reads: “The rate of collection of tax under section 236H on the gross amount of sales shall be 0.5%.” The footnotes show an older version of Division XV that charged 1% on electronics and 0.5% on others. That version has been replaced.

Rule 1 of the Tenth Schedule generally increases the rate for persons not on the Active Taxpayers’ List by one hundred percent. Its third proviso, however, sets specific rates in a Table, and serial 4 of that Table sets 2.5% for section 236H “on the gross amount of sale to retailers”. Any other figure for the 236H rate that is not in these two places is not what the consolidated text says.

Worked example (illustrative figures)

Sadia runs a general store in Gulshan-e-Iqbal, Karachi. In one month she buys stock worth Rs. 800,000 (gross amount of sale on the supplier’s invoices, an invented figure).

If she is on the Active Taxpayers’ List:

1. Rate: 0.5%.
2. Rs. 800,000 x 0.5% = Rs. 4,000.

If she is not on the Active Taxpayers’ List:

1. Rate: 2.5%.
2. Rs. 800,000 x 2.5% = Rs. 20,000.

The difference in that one month is Rs. 20,000 minus Rs. 4,000 = Rs. 16,000.

If her purchases total Rs. 9,600,000 over the tax year, the tax collected at 0.5% is Rs. 48,000. Under section 236H(2), that Rs. 48,000 is credited when her tax for the year is computed.

What if I am a large retailer?

The amount collected under section 236H also matters for sales tax. Clause (gb) of the Tier-1 retailer definition, inserted by the Finance Act, 2026, covers a retailer whose turnover exceeds Rs. 200 million in the preceding twelve months, “either by way of declaration or from worked back value of turnover from tax deduction under section 236G or 236H”. Tax collected by suppliers can therefore be used to work out a retailer’s turnover.

What if I buy from another retailer?

Section 236H(1) places the duty on manufacturers, distributors, dealers, wholesalers and commercial importers. A purchase from a person outside that list is not covered by the words of the section.

Common mistakes

• Treating 236H as an extra, final cost. Section 236H(2) makes it a credit against the retailer’s tax for the year.
• Applying the old electronics rate. The 1% electronics rate is in a footnote of a replaced Division.
• Doubling 0.5% to 1% for non-filers. The Tenth Schedule Table fixes 2.5% for section 236H, not the general one hundred percent increase.
• Assuming credit covers more than was collected. Section 236H(2) allows credit for the tax collected under sub-section (1), in the tax year in which it was collected.

What to check in the official text

Read section 236H, Division XV of Part IV of the First Schedule, and rule 1 of the Tenth Schedule with its third proviso Table, all in the Income Tax Ordinance amended to 30 June 2026. For the turnover link to Tier-1 status, read clause (gb) in section 4 of the Finance Act, 2026. The Tenth Schedule rate turns on whether the retailer appears on the Active Taxpayers’ List. The list itself is not part of the text held here.