Does a distributor who sells only exempt goods have to register for sales tax?

A distributor of rice, flour or pulses often hears that “every wholesaler must register”. That is true for wholesalers of taxable goods. The duty in section 14 of the Sales Tax Act, 1990 is tied to making taxable supplies, so a trader whose goods are all exempt sits outside it. The picture changes as soon as one taxable line is added to the stock.

What does the law say?

Section 14(1) begins with “Every person engaged in making taxable supplies in Pakistan, including zero-rated supplies”. Only such persons who also fall in a listed category are “required to be registered”. Clause (e) of the list is “a wholesaler, dealer or distributor”.

Three definitions in section 2 then decide what a taxable supply is:

Clause of section 2	What it says (in short)
(11) exempt supply	A supply which is exempt from tax under section 13
(39) taxable goods	All goods other than those exempted under section 13
(41) taxable supply	A supply of taxable goods by an importer, manufacturer, wholesaler (including dealer), distributor or retailer, other than a supply exempt under section 13, including zero-rated supplies

Section 13(1) says that supply or import of goods specified in the Sixth Schedule shall, subject to conditions specified by the Federal Government, be exempt from tax.

Read together, a supply of Sixth Schedule goods is an exempt supply, not a taxable supply. A distributor whose every supply is exempt is not “engaged in making taxable supplies”, so section 14(1) does not require registration.

Which goods are exempt?

The Sixth Schedule is a long table. A few entries in Table-1 (Imports or Supplies), as printed in the consolidated Act amended to 30 June 2026, are relevant to food distributors:

Serial No.	Description, as printed
14	Pulses
16	Red chillies excluding those sold under brand names and trademarks
17	Ginger excluding those sold under brand names and trademarks
18	Turmeric excluding those sold under brand names and trademarks
19	Rice, wheat, wheat and meslin flour

Many other serial numbers in the same table have been omitted over the years, and several entries carry qualifications. The wording “excluding those sold under brand names and trademarks” in serial numbers 16 to 18 means branded red chillies, ginger and turmeric are not covered by those entries. Each entry must be read with its PCT heading and any condition attached to it.

How does it work when a trader sells both?

Once a distributor supplies any taxable goods, it is engaged in making taxable supplies and clause (e) of section 14(1) applies. The exempt goods do not become taxable because of registration. What changes is input tax.

Section 8(2) says a registered person who deals in taxable and non-taxable supplies “can reclaim only such proportion of the input tax as is attributable to taxable supplies”. Section 8(1)(a) separately bars input tax on goods used for any purpose other than taxable supplies.

Rule 25 of the Sales Tax Rules, 2006 sits in the chapter that applies to registered persons making taxable and exempt supplies at the same time. It sets the method:

1. Input tax relating wholly to taxable supplies is admissible.
2. Input tax relating wholly to exempt supplies is not admissible.
3. Residual input tax, used for both, is apportioned: value of taxable supplies divided by value of taxable plus exempt supplies, multiplied by residual input tax.
4. Monthly adjustments are provisional, and a final adjustment is made at the end of each financial year on the year’s actual supplies.

Rule 25 speaks of input tax “paid on raw materials” in sub-rules (1) and (2), wording written with manufacturers in mind. Section 8(2) is the general rule for every registered person.

Worked example (illustrative figures)

Rashid Traders in Sukkur distributes rice and pulses to shops across the district. In July 2026 it adds a line of packaged goods that, for this example, are assumed not to be in the Sixth Schedule.

1. Before July, every supply was exempt. Section 14(1) did not reach Rashid Traders.
2. From July it makes taxable supplies as a distributor, so clause (e) of section 14(1) applies.
3. July supplies: taxable Rs. 2,000,000; exempt Rs. 6,000,000; total Rs. 8,000,000.
4. Input tax on the packaged goods bought for resale is Rs. 250,000. It relates wholly to taxable supplies.
5. Residual input tax on items used for both lines (assume packing material) is Rs. 60,000.
6. Rule 25(3) share: Rs. 60,000 x 2,000,000 / 8,000,000 = Rs. 15,000.
7. Input tax taken into the July return: Rs. 250,000 + Rs. 15,000 = Rs. 265,000, provisionally, subject to the year-end adjustment under rule 25(4).

The other Rs. 45,000 of residual input tax relates to exempt supplies and is not claimed.

What if an exempt item is branded or processed?

The exemption follows the exact words of the Sixth Schedule entry. Serial numbers 16 to 18 expressly exclude red chillies, ginger and turmeric sold under brand names and trademarks. A distributor moving from loose to branded stock of those items may be moving from exempt to taxable supplies, and so into section 14(1).

Common mistakes

• Assuming “food” is exempt. Only goods listed in the Sixth Schedule, or exempted by a notification under section 13(2), are exempt. Many former entries in Table-1 now read “omitted”.
• Registering and claiming all input tax. Section 8(2) and rule 25 allow only the share attributable to taxable supplies.
• Ignoring the year-end adjustment. Rule 25(4) says the monthly apportionment is provisional, and rule 25(5) makes a wrongful claim from an incorrect formula punishable even though it was provisional.

What to check in the official text

Read sections 2, 8, 13 and 14 of the Sales Tax Act amended to 30 June 2026 and rule 25 of the Sales Tax Rules, 2006, with the short application rule that opens its chapter. Check the exact Sixth Schedule entry for each product, including its PCT heading and any condition. Exemptions granted by notification under section 13(2) are not held in this corpus.