What is the minimum tax rate on turnover, and what counts as turnover?

Two figures decide minimum tax under section 113 of the Income Tax Ordinance, 2001: the rate from the Division IX table and the turnover it is applied to. Both are fixed by the text of the Ordinance amended to 30 June 2026, which gives the rates for tax year 2027 (1 July 2026 to 30 June 2027).

What does the law say about the rate?

Section 113 does not contain a rate of its own. Section 113(2)(b) says a person within the section pays “minimum tax computed on the basis of rates as specified in Division IX of Part I of First Schedule”. For an individual, the section applies only where turnover is one hundred million rupees or above in tax year 2017 or any later tax year.

The current Division IX table reads:

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

Most sole proprietors, such as a cloth merchant, a hardware store owner or a furniture maker, fall under serial 4 at 1.25%.

Are there lower rates outside the table?

Yes, in Part II of the Second Schedule:

• Clause (24D) sets the rate under section 113(1) at 0.5% for distributors, dealers, sub-dealers and wholesalers of the goods in its table, subject to the condition that they appear on the active taxpayers’ lists under the Sales Tax Act, 1990 and the Income Tax Ordinance, 2001. The goods include pharmaceuticals, fertilizer, cigarettes, sugar, locally manufactured mobile phones, electronics, beverages and dairy products, and various packaged foods and household products.
• Clause (28E) sets the rate at 0.5% for a trader of yarn who is an individual.

Where do 1% and 1.5% come from?

Both figures appear in the official PDF, but only in footnotes showing superseded text:

• The footnotes record that the Finance Act, 2014 replaced “an amount equal to one percent of the person’s turnover for the year” in section 113(2)(b) with the reference to Division IX rates.
• A footnote to Division IX says the Finance Act, 2021 substituted the table, and reproduces the earlier table in which “In all other cases” was 1.5%.

Neither is the current general rate.

What counts as turnover?

Section 113(3) defines turnover in four parts:

1. Goods: “the gross sales or gross receipts, exclusive of Sales Tax and Federal Excise duty or any trade discounts shown on invoices, or bills”, also excluding any amount taken as deemed income and assessed as final discharge of tax liability.
2. Services: the gross fees for rendering services, including commissions, except those covered by final discharge of tax liability.
3. Contracts: the gross receipts from executing contracts, except those covered by final discharge of tax liability.
4. Companies: a company’s share of these amounts from an association of persons it belongs to. This part does not apply to a sole proprietor.

The Explanation to section 113(2)(a) adds that turnover “covers receipts from all business activities”, including receipts from sale of immovable property where those receipts are taxable under the head Income from Business.

Worked example (illustrative figures)

Farhan runs a wholesale crockery business in Faisalabad as a sole proprietor. He is not in any listed sector, so serial 4 applies. His invoices for the year show:

• Gross amount invoiced to customers: Rs. 245,000,000
• Sales tax shown on those invoices: Rs. 36,000,000
• Trade discounts shown on those invoices: Rs. 4,000,000

Step by step:

1. Turnover: Rs. 245,000,000 minus Rs. 36,000,000 minus Rs. 4,000,000 = Rs. 205,000,000.
2. Turnover is above one hundred million rupees, so section 113 can apply.
3. Minimum tax: 1.25% of Rs. 205,000,000 = Rs. 2,562,500.
4. Farhan pays Rs. 2,562,500 only if normal tax on his taxable income is lower. If normal tax is higher, he pays normal tax.

If Farhan were a rice dealer instead, serial 3 would apply: 0.25% of Rs. 205,000,000 = Rs. 512,500.

What if my business fits more than one row?

The Division IX table does not say how to split the turnover of a person with several activities between rows, except that serial 3 speaks of a “person’s turnover from supplies through e-commerce”. The text does not settle a mixed business, and this page does not either.

Common mistakes

• Applying 1.5% for tax year 2027. That rate belongs to the table replaced by the Finance Act, 2021.
• Counting sales tax as turnover. Section 113(3)(a) excludes sales tax and federal excise duty.
• Deducting discounts that are not on the invoice. The exclusion covers trade discounts “shown on invoices, or bills”. Discounts not shown there are not mentioned in the exclusion.
• Applying minimum tax below Rs. 100 million. For an individual, section 113(1) does not reach turnover below that figure.

What to check in the official text

Read the Division IX table and its footnotes in the official PDF amended to 30 June 2026, because our site copy leaves out tables. Read clauses (24D) and (28E) of Part II of the Second Schedule, and clause (11A) of Part IV of the Second Schedule, which lists persons and receipts to which section 113 does not apply, such as retail petroleum dealers for turnover from petrol pump sales. Read section 113(3) for the full definition of turnover.