Do I as a distributor or wholesaler have to collect section 236H advance tax when I sell to shopkeepers?

A distributor sits in the middle of two advance taxes. When it buys from a manufacturer, section 236G tax is collected from it. When it sells onward to shopkeepers, section 236H turns it into the collector: it adds advance tax to its invoice, keeps the money for the government, and passes it on.

What does section 236H say?

Section 236H(1) of the Income Tax Ordinance, 2001 lists who must collect and when:

• every manufacturer, distributor, dealer, wholesaler or commercial importer, “at the time of sale to retailers”; and
• “every distributor or dealer to another wholesaler”.

They “shall collect advance tax at the rate specified in Division XV of Part IV of the First Schedule, from the aforesaid person to whom such sales have been made.”

Section 236H(2) then gives the buyer credit: tax collected under sub-section (1) “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.”

What rate applies?

Division XV of Part IV of the First Schedule, as amended to 30 June 2026, reads: “The rate of collection of tax under section 236H on the gross amount of sales shall be 0.5%.” That is the rate for tax year 2027 (1 July 2026 to 30 June 2027). There is now a single rate; an earlier version of Division XV had a separate 1% rate for electronics, and that version was substituted by the Finance Act, 2021.

A retailer who is not on the Active Taxpayers’ List is charged a higher rate under the Tenth Schedule. That is covered on the related page on the rate for retailers off the list.

Who counts as a retailer?

Section 236H does not define “retailer”, and the definitions in section 2 of the Ordinance as amended to 30 June 2026 do not define it either. The word therefore has no statutory definition for this section in the consolidated text. A general store, a pharmacy counter or a hardware shop selling to the public would be the ordinary examples, but the Ordinance itself does not draw the line, and this page does not draw it for it.

Worked example (illustrative figures)

Rana Distributors supplies biscuits and soft drinks to shops in Gujranwala. On 10 August 2026 it sells goods worth Rs. 400,000 to Bismillah Karyana Store, which is on the Active Taxpayers’ List. The amounts are invented; the rate is the Division XV rate.

1. Gross amount of the sale: Rs. 400,000.
2. Rate under Division XV: 0.5%.
3. Tax to collect: Rs. 400,000 x 0.5% = Rs. 2,000.
4. The shop pays Rs. 400,000 for the goods plus Rs. 2,000 of section 236H tax.

If Rana Distributors sells Rs. 12,000,000 of goods to retailers in August 2026, the 236H tax it collects that month is Rs. 12,000,000 x 0.5% = Rs. 60,000. Section 160 requires that amount to be paid to the Commissioner “within the time and in the manner as may be prescribed”. The deadline and payment method are set by the rules, not by section 160 itself.

For the shop, the Rs. 2,000 is not a cost that disappears. Under section 236H(2), and the general rule in section 168(2), it is allowed as a credit in computing the shop’s tax for the tax year in which it was collected.

What if I sell to another wholesaler?

The second limb of section 236H(1) covers “every distributor or dealer to another wholesaler”. A distributor or dealer selling to a wholesaler collects at the Division XV rate. A wholesaler selling to another wholesaler is not named in that limb. That limb still carries the words “in respect of the said sectors”, which refer back to a sector list that the Finance Act, 2024 omitted; the related page on listed sectors explains why this wording is unclear.

What if I do not collect it?

Section 161(1) makes a person who fails to collect tax as required under Chapter XII, or who collects it and does not pay it under section 160, “personally liable to pay the amount of tax to the Commissioner”. Section 161(2) lets that person recover the tax from the person from whom it should have been collected. The related page on failure to collect covers this in more detail.

Common mistakes

• Treating 236H as the retailer’s tax to deposit. Section 236H(1) puts the duty to collect on the seller: the manufacturer, distributor, dealer, wholesaler or commercial importer.
• Charging 0.5% on the profit margin. Division XV applies the rate “on the gross amount of sales”.
• Using the old 1% electronics rate. Division XV was substituted by the Finance Act, 2021 and now has one rate.
• Assuming the distributor can claim credit for 236H it collected. Section 236H(2) gives the credit to the retailer from whom it was collected, not to the collector.

What to check in the official text

Read section 236H and Division XV of Part IV of the First Schedule in the Income Tax Ordinance amended to 30 June 2026, together with sections 160 and 161. Check the Income Tax Rules for the time and manner of payment that section 160 refers to, and check the buyer’s status on the Active Taxpayers’ List before applying the rate.