When a company or government department buys from me, how much sales tax can it withhold?

When a distributor supplies a government office, a public sector body or a company, the buyer may hold back part of the sales tax shown on the invoice and deposit it with the government directly. How much depends on who the buyer is, whether the distributor is an active taxpayer, and whether the goods fall in one of the exclusions printed after the Eleventh Schedule Table.

What does the law say?

Section 3(7) of the Sales Tax Act, 1990 says the tax shall be withheld at the rate specified in the Eleventh Schedule, by a person or class of persons being a purchaser of goods or services, “as withholding agent for the purpose of depositing the same, in such manner and subject to such conditions or restrictions as the Board may prescribe” through a Gazette notification.

The Eleventh Schedule Table, as amended to 30 June 2026, sets these rates for the first four rows:

S. No.	Withholding agent	Supplier category	Rate or extent of deduction
1	(a) Federal and provincial government departments, autonomous bodies and public sector organizations; (b) companies as defined in the Income Tax Ordinance, 2001	Active taxpayers	1/5th of sales tax as shown on invoice
2	Same as S. No. 1	Active taxpayer registered as a wholesaler, dealer or distributor	1/10th of sales tax as shown on invoice
3	Federal and provincial government departments, autonomous bodies and public sector organizations	Persons other than active taxpayers	Whole of the tax involved or as applicable to supplies on the basis of gross value of supplies
4	Companies, association of persons and individuals as defined in the Income Tax Ordinance, 2001, excluding companies exporting surgical instruments	Persons other than active taxpayers	5% of gross value of supplies

The words “association of persons and individuals” in row 4 were added by the Finance Act, 2026.

Which supplies are excluded?

The heading of the Table says withholding “shall not be applicable” to the goods and supplies listed after it. Those clauses are:

1. Electrical energy.
2. Natural gas.
3. Petroleum products as supplied by exploration and production companies, refineries, oil marketing companies and dealers of motor spirit and high speed diesel.
4. Vegetable ghee and cooking oil.
5. Telecommunication services.
6. Goods specified in the Third Schedule.
7. Supplies by importers who paid value addition tax at import.
8. Supplies made by an active taxpayer to another registered person, except supplies under S. Nos. 5, 7, 9, 10, 11, 12 and 13 of the Table.
9. Sand, stone, gravel or crush and clay supplied to low cost housing schemes sponsored or approved by the Naya Pakistan Housing and Development Authority.

Clause (viii) matters most to a distributor. If you are an active taxpayer and your buyer is itself registered, the Schedule does not apply to that supply. Rows 1 and 2 therefore reach an active distributor mainly where the government department or company buying from it is not a registered person.

Who counts as an active taxpayer?

Section 2(1A) defines an active taxpayer as a registered person who is not blacklisted or under suspended registration, has not failed to file sales tax returns by the due date for two consecutive tax periods, has not failed to file the income tax return or statement under the Income Tax Ordinance, 2001 by the due date, and has not failed to file the quarterly or annual withholding tax statement under that Ordinance.

Worked example (illustrative figures)

Ahmed Distributors in Quetta supplies stationery to a buyer. The invoice shows value exclusive of tax of Rs. 1,000,000 and sales tax of Rs. 180,000. The names and amounts are invented; the fractions and percentage are from the Eleventh Schedule.

Situation	Calculation	Tax withheld by buyer
Active distributor, unregistered government department buys (row 2)	1/10 x Rs. 180,000	Rs. 18,000
Same, but supplier is an active taxpayer not registered as a distributor (row 1)	1/5 x Rs. 180,000	Rs. 36,000
Distributor not active, government department buys (row 3)	Whole of the tax	Rs. 180,000
Distributor not active, company buys (row 4)	5% x gross value	Rs. 50,000 on Rs. 1,000,000, or Rs. 59,000 on Rs. 1,180,000
Active distributor, registered company buys	Clause (viii) exclusion	Nil

The Schedule does not define “gross value of supplies”, so the row 4 line shows both readings rather than choosing one.

How does the withheld amount reach my return?

Rule 18 of the Sales Tax Rules, 2006 links the supplier’s reduction in output tax to the buyer’s return. Rule 18(5)(ii) allows the supplier a provisional reduction, which is adjusted or recovered if the buyer does not declare the withheld amount by the 10th day of the next month. Rule 18(4A) says that where a registered person declares tax withheld but does not declare the corresponding sales to that withholding agent, the withheld amount and reduction in output tax “shall not be allowed”.

What if the buyer does not withhold?

Section 11F puts the consequence on the withholding agent. Where a person required to withhold under section 3(7) fails to withhold, or withholds and fails to deposit, an officer not below Assistant Commissioner shall, after a show cause notice, determine and recover the amount in default and impose penalty and default surcharge.

Common mistakes

• Assuming every company withholds from every supplier. Clause (viii) removes supplies by an active taxpayer to another registered person.
• Using 1/5th for a distributor. Row 2 gives 1/10th where the active taxpayer is registered as a wholesaler, dealer or distributor.
• Declaring the withheld tax without the matching sale. Rule 18(4A) disallows it.

What to check in the official text

Read section 2(1A), section 3(7), section 11F and the Eleventh Schedule in the Sales Tax Act, 1990 as amended to 30 June 2026, and rule 18 of the Sales Tax Rules, 2006. The Board’s notification prescribing the manner, conditions and restrictions for withholding under section 3(7) is not held on this site in a current version.