What does turnover include for minimum tax: gross sales, sales tax, returns and discounts?

Turnover for minimum tax is a gross figure, not a profit figure. Section 113(3) of the Income Tax Ordinance, 2001 starts from everything the business receives and removes only a short list of items: sales tax, federal excise duty, trade discounts shown on invoices or bills, and amounts already taxed as a final discharge.

Who needs to work out turnover under section 113?

Section 113(1) applies to a resident company, a permanent establishment of a non-resident company, and to an individual or an association of persons having turnover of one hundred million rupees or more in tax year 2017 or any later tax year. A sole proprietor whose turnover stays below Rs. 100 million is outside this section.

For those inside it, section 113 compares the tax actually payable with a percentage of “turnover from all sources” set in Division IX of Part I of the First Schedule. If the normal tax is lower, or nil because of a loss, deductions or exemptions, the person pays the minimum tax instead. The rates are covered on a separate page.

What does the law include in turnover?

Section 113(3) lists four parts. Three matter to an individual:

Clause	What is included	What is left out
(a)	Gross sales or gross receipts from the sale of goods	Sales tax, federal excise duty, trade discounts shown on invoices or bills, and amounts taken as deemed income assessed as final discharge
(b)	Gross fees for rendering services or giving benefits, including commissions	Receipts covered by final discharge of tax liability for which tax is separately paid or payable
(c)	Gross receipts from executing contracts	Receipts covered by final discharge of tax liability for which tax is separately paid or payable

Clause (d) deals with a company’s share of an association’s turnover and does not apply to a sole proprietor.

An Explanation added to section 113(2)(a) removes any doubt about scope. It says the definition “covers receipts from all business activities”, and names receipts from selling immoveable property where that receipt is taxed under the head Income from Business.

Why are final tax receipts left out?

Section 169 deals with tax collected or deducted as a final tax. Where it applies, the income “shall not be chargeable to tax under any head of income”. Section 113(3) follows the same logic: a receipt whose tax is already a final discharge is not counted again in the turnover base. The Explanation to section 113(1) also says that “tax payable or paid” does not include tax on deemed income assessed as final discharge, so that tax is not used to meet the minimum either.

Worked example (illustrative figures)

Imran runs a wholesale electrical goods business in Gujranwala as a sole proprietor. His made-up figures for tax year 2027 are:

Item	Amount
Total invoiced to customers, including sales tax	Rs. 148,000,000
Sales tax shown on those invoices	Rs. 20,000,000
Trade discounts printed on those invoices	Rs. 3,000,000
Commission received from a manufacturer for promoting its products	Rs. 2,500,000
Receipts whose tax is a final discharge (assumed for this example)	Rs. 1,500,000

Step by step:

1. Start with invoiced sales: Rs. 148,000,000.
2. Remove sales tax: Rs. 148,000,000 minus Rs. 20,000,000 = Rs. 128,000,000.
3. Remove trade discounts shown on invoices: Rs. 128,000,000 minus Rs. 3,000,000 = Rs. 125,000,000.
4. Remove the final discharge receipts: Rs. 125,000,000 minus Rs. 1,500,000 = Rs. 123,500,000.
5. Add commission under clause (b): Rs. 123,500,000 plus Rs. 2,500,000 = Rs. 126,000,000.

Imran’s turnover under section 113(3) is Rs. 126,000,000. It is above Rs. 100 million, so section 113 applies to him for the year. The applicable percentage then comes from Division IX of Part I of the First Schedule.

What if …?

What if customers return goods? Section 113(3) does not mention sales returns. It speaks of “gross sales or gross receipts” and lists the exclusions. The Ordinance does not say whether a return reduces gross sales, so this page does not resolve it.

What if I give a discount that is not on the invoice? The exclusion covers “trade discounts shown on invoices, or bills”. A discount agreed later and not shown on an invoice or bill is not within those words. The law does not say anything more about it.

What if I run two businesses? Section 113(1) refers to turnover “from all sources”, and the Explanation covers receipts from all business activities. Turnover from both businesses is added together.

What if my business made a loss? A loss for the year is one of the reasons listed in section 113(1) that can bring minimum tax into play. Turnover is measured the same way whether there is a profit or a loss.

Common mistakes

• Using profit instead of turnover. Section 113 is based on gross receipts. Expenses, cost of goods sold and depreciation are not subtracted.
• Leaving sales tax in the figure. Section 113(3)(a) takes sales tax and federal excise duty out.
• Treating every discount as excluded. Only trade discounts shown on invoices or bills are named.
• Assuming minimum tax applies to every trader. For an individual, section 113(1) starts at turnover of Rs. 100 million.
• Counting only sales of goods. Service fees, commissions and contract receipts are part of turnover under clauses (b) and (c).

What to check in the official text

Read section 113 in full, especially sub-section (3) and the Explanations to sub-sections (1) and (2)(a). Then check section 169 and the provision under which any receipt was taxed, to confirm whether that tax is a final discharge. The minimum tax percentage for your line of business is in Division IX of Part I of the First Schedule.