Does minimum tax on turnover under section 113 apply to a software house?

What does section 113 say?

Section 113(1) opens: “This section shall apply to a resident company”. It also covers a permanent establishment of a non-resident company, and individuals and associations of persons with turnover of Rs. 100 million or more in tax year 2017 or any later year. Nothing in the section treats IT businesses differently. A software house registered as a company in Pakistan is inside section 113 from its first tax year.

The section bites when, because of a loss, a brought forward loss, an exemption, credits or rebates, or allowances and deductions (including depreciation), the tax payable or paid for the year is less than the percentage in Division IX of Part I of the First Schedule applied to “turnover from all sources”. In that case section 113(2) treats turnover as income and the person pays minimum tax at the Division IX rate instead of the actual tax.

What rate applies to a software house?

Division IX sets rates by sector: 0.75% for the two named gas companies and a few other listed cases, 0.5% for oil refineries, motorcycle dealers and oil marketing companies, 0.25% for listed trades such as rice mills, flour mills and e-commerce supplies, and 1.25% “In all other cases”. Software development and IT services are not named in any row, so the 1.25% row is the one that fits a software house for tax year 2027.

Why is export income left out?

Two parts of section 113 keep final-tax income out of the calculation.

• Turnover. Section 113(3)(b) defines turnover from services as “the gross fees for the rendering of services”, “except covered by final discharge of tax liability for which tax is separately paid or payable”. Export proceeds on which section 154A tax is final under section 154A(2) are covered by that exception.
• Tax payable. The Explanation to section 113(1) says “tax payable or paid” does not include “tax already paid or payable in respect of deemed income which is assessed as final discharge of the tax liability under section 169”, or tax under section 4B or 4C.

This fits section 169(2)(a): income under a final tax “shall not be chargeable to tax under any head of income in computing the taxable income of the person”. In practice, section 113 looks only at the software house’s local business: local turnover against the tax computed on local taxable income.

How does section 153 fit in?

Local clients who are prescribed persons deduct tax under section 153(1)(b) when they pay for services. Section 153(3) says tax deductible under sub-section (1) on the income of a resident person “shall be minimum tax”, and its Explanation says that income “means the amount on which tax is deductible”. The exceptions in the proviso cover goods sold by manufacturers or listed companies and contracts of listed companies, not services. So for a software house’s local services there are two floors: the section 153 deduction on each payment, and section 113 on total local turnover.

The Ordinance does not set out, in section 113 or section 153, how these two minimum taxes are combined. The Explanation to section 113(1) excludes only final taxes and tax under sections 4B and 4C from “tax payable or paid”, and says nothing specific about section 153 minimum tax. This page does not resolve that point.

Worked example (illustrative figures)

A software company in Karachi, PSEB-registered, for tax year 2027:

• Export proceeds: Rs. 200,000,000, taxed as final under section 154A at 0.25% = Rs. 500,000.
• Local service receipts: Rs. 60,000,000.
• Taxable income from local business after apportioned expenses and depreciation: Rs. 2,000,000.

1. Normal tax on local taxable income at 29% (Division II, “any other company”): Rs. 2,000,000 x 29% = Rs. 580,000.
2. Turnover for section 113 leaves out the final-tax export proceeds: Rs. 60,000,000.
3. Minimum tax: Rs. 60,000,000 x 1.25% = Rs. 750,000.
4. The Rs. 500,000 export tax is excluded from “tax payable or paid” by the Explanation.
5. Rs. 580,000 is less than Rs. 750,000, so section 113 applies and the company pays Rs. 750,000 on its local business.
6. The excess of Rs. 170,000 (Rs. 750,000 minus Rs. 580,000) is carried forward under section 113(2)(c) for up to two tax years.

The section 153 point above still applies: if local clients deducted tax at 4% on the Rs. 60,000,000, that would be Rs. 2,400,000 of minimum tax under section 153(3), and the law does not spell out how that interacts with this calculation.

What if …?

The company opts out of final taxation on exports. Section 154A(3) lets a person opt out each year when filing the return. The export proceeds are then no longer “covered by final discharge of tax liability”, so they would fall within section 113 turnover.

The business is run by an individual or AOP. Section 113 applies only if turnover is Rs. 100 million or more in tax year 2017 or any later year.

The company is a certified startup. Section 65F(1)(b) gives a 100% credit on tax payable “including minimum” tax, for the certification year and two following years, subject to section 65F(2).

Common mistakes

• Counting export proceeds in turnover when the section 154A tax on them is final.
• Counting the export tax as tax paid when comparing with minimum tax. The Explanation to section 113(1) excludes it.
• Assuming an IT exemption from section 113. The footnotes show an old clause (22) of Part IV of the Second Schedule that switched off section 113 for clause (133) exporters; it was omitted by the Finance Act, 2005.

What to check in the official text

Read section 113(1) to (3) and the Division IX table in the Ordinance amended to 30 June 2026, together with sections 153(3), 154A(2) and 169(2). The carry-forward period in section 113(2)(c) has been changed several times; the footnotes record five, then three, then two years.