How much section 153 tax does a company deduct when paying a distributor for goods, and is it minimum or adjustable tax?

When a distributor supplies goods to a company, the company pays the invoice less income tax withheld under section 153 of the Income Tax Ordinance, 2001. The rate depends on who the distributor is, which goods it sells and whether it appears on the Active Taxpayers’ Lists. The answer below uses the Ordinance as amended to 30 June 2026, which gives the rates for tax year 2027.

Who has to deduct the tax?

Section 153(1)(a) requires every “prescribed person” paying a resident person for the sale of goods, including toll manufacturing, to deduct tax from the gross amount payable, including sales tax. The duty does not arise where payments are less than seventy-five thousand rupees in aggregate during a financial year. Section 153(7) defines prescribed persons to include:

• the Federal Government, a company, an association of persons constituted by or under law, and a non-profit organization;
• a foreign contractor or consultant, and a consortium or joint venture;
• an individual or association of persons with turnover of one hundred million rupees or more in any of the preceding tax years;
• a person registered under the Sales Tax Act, 1990 with turnover of one hundred million rupees or more in any of the preceding tax years; and
• a builder.

What are the rates?

Seller and goods	Rate on gross amount payable	Source
Company, sale of goods (not toll manufacturing)	5%	Division III, para (1)(b)(i)
Other than a company, sale of goods (not toll manufacturing)	5.5%	Division III, para (1)(b)(ii)
Distributors of cigarettes	2.5%	Clause (24A)
Distributors of pharmaceutical products	1%	Clause (24A)
Distributors, dealers, sub-dealers, wholesalers and retailers of fast moving consumer goods, fertilizer, electronics excluding mobile phones, sugar, cement, steel and edible oil, on both Active Taxpayers’ Lists	0.25%	Clause (24C)

Clause (24C) applies only if the recipient appears on the Active Taxpayers’ Lists issued under both the Sales Tax Act, 1990 and the Income Tax Ordinance, 2001. Its proviso limits the benefit for retailers to Tier-1 retailers integrated with the Board’s computerized system for real time reporting. Clause (24A) sets no Active Taxpayers’ List condition of its own. Division III also has separate rates for rice, cotton seed and edible oils (1.5%) and for toll manufacturing.

What if the distributor is not on the Active Taxpayers’ List?

Rule 1 of the Tenth Schedule increases any rate of deduction or collection by hundred percent for persons not appearing in the active taxpayers’ list. On the plain words, a 5.5% rate becomes 11% for a non-company distributor off the list.

Is it minimum tax or adjustable?

Section 153(3) says the tax deductible under sub-section (1) on the income of a resident person “shall be minimum tax”. There are two exceptions for goods: it is not minimum tax where the payment is received by a company that manufactures the goods, or by a public company listed on a registered stock exchange in Pakistan. A distributor, dealer or wholesaler that does not manufacture the goods falls outside both exceptions.

An Explanation to sub-section (3) says the income it refers to is the amount on which tax is deductible. Section 153 labels the tax as minimum tax but does not itself set out the full computation in the return.

Section 153(4) matters here too. The Commissioner can allow a reduced rate “in cases where tax deductible under sub-section (1) is not minimum”. Because a distributor’s section 153 tax is minimum tax, that route is not open to it on the words of the section.

How does this sit alongside section 236G?

The same carton can meet both taxes at different points. When the distributor buys from the manufacturer or commercial importer, section 236G tax is collected from the distributor, and section 236G(2) allows credit for it against the distributor’s tax for the year. When the distributor sells that stock to a company, section 153 tax is deducted from the payment and is minimum tax. They are different taxes on different transactions, with different treatment.

Worked example (illustrative figures)

Al-Noor Distributors, an association of persons in Lahore, supplies packaged biscuits to a company. The invoice, including sales tax, is Rs. 2,360,000. The amounts are invented; the rates are those cited above.

1. On both Active Taxpayers’ Lists, clause (24C) applies: Rs. 2,360,000 x 0.25% = Rs. 5,900 deducted. The company pays Rs. 2,354,100.
2. Not on both lists, so clause (24C) is lost, but on the income tax list: Division III rate for a non-company, Rs. 2,360,000 x 5.5% = Rs. 129,800.
3. Not on the income tax Active Taxpayers’ List: the Tenth Schedule doubles 5.5% to 11%, so Rs. 2,360,000 x 11% = Rs. 259,600.

Clause (24C) does not define “fast moving consumer goods”. Whether a particular product qualifies is not settled by the clause itself.

Common mistakes

• Calling section 153 tax on a distributor’s sales adjustable. Section 153(3) makes it minimum tax unless the seller is a manufacturing company or listed public company.
• Leaving sales tax out of the base. Section 153(1) deducts from the gross amount including sales tax.
• Claiming 0.25% while on only one list. Clause (24C) needs both Active Taxpayers’ Lists.

What to check in the official text

Read section 153 and Division III of Part III of the First Schedule, clauses (24A) and (24C) of Part II of the Second Schedule, and rule 1 of the Tenth Schedule, all as amended to 30 June 2026. Check the full list of prescribed persons in section 153(7) against the buyer you supply.