What section 236H rate applies when the retailer I sell to is not on the Active Taxpayers List?

For the same box of goods, a distributor collects five times as much section 236H tax from a shop that is off the Active Taxpayers’ List as from one that is on it. The two rates come from two different places in the Ordinance, which is why they are easy to mix up.

What does the law say?

Section 236H(1) of the Income Tax Ordinance, 2001 requires every manufacturer, distributor, dealer, wholesaler or commercial importer, at the time of sale to retailers, to collect advance tax “at the rate specified in Division XV of Part IV of the First Schedule”. Division XV sets that rate at 0.5% “on the gross amount of sales”.

Section 100BA(1) then says that collection of advance income tax in respect of a person not appearing on the Active Taxpayers’ List “shall be determined in accordance with the rules in the Tenth Schedule”. Section 100BA(2) gives the Tenth Schedule effect notwithstanding anything to the contrary in the Ordinance.

The third proviso to rule 1 of the Tenth Schedule has a table of fixed rates for persons not on the list. Serial 4 reads: Section 236H, “On the gross amount of sale to retailers”, 2.5%.

Retailer’s status	Source of the rate	Rate for tax year 2027
On the Active Taxpayers’ List	First Schedule, Part IV, Division XV	0.5%
Not on the Active Taxpayers’ List	Tenth Schedule, rule 1, third proviso, serial 4	2.5%

Tax year 2027 runs from 1 July 2026 to 30 June 2027.

Worked example (illustrative figures)

Sheikh Brothers, a wholesaler of cooking oil and soap in Peshawar, issues two invoices on the same day for Rs. 250,000 each. Noor General Store is on the Active Taxpayers’ List. Khan Traders, a small shop, is not. The amounts are invented; the rates are the ones above.

Invoice to Noor General Store (on the list)

1. Gross amount of sale: Rs. 250,000.
2. Rate: 0.5%.
3. Tax collected: Rs. 250,000 x 0.5% = Rs. 1,250.
4. Invoice total with tax: Rs. 251,250.

Invoice to Khan Traders (not on the list)

1. Gross amount of sale: Rs. 250,000.
2. Rate: 2.5%.
3. Tax collected: Rs. 250,000 x 2.5% = Rs. 6,250.
4. Invoice total with tax: Rs. 256,250.

The difference on one invoice is Rs. 6,250 minus Rs. 1,250 = Rs. 5,000. If Sheikh Brothers sells Rs. 3,000,000 a month to shops off the list, it collects Rs. 75,000 on those sales, against Rs. 15,000 had the same shops been on the list.

What if the shopkeeper did not need to file a return?

Rule 2 of the Tenth Schedule deals with this. Where the person required to collect is satisfied that a person not on the list “was not required to file a return of income”, it must, before collecting, give the Commissioner a written electronic notice with:

• the name, CNIC or NTN and address of the person;
• the nature and amount of the transaction; and
• the reason it is considered that the person was not required to file.

The Commissioner then has thirty days to accept the contention or, if there are reasonable grounds to believe a return was required, to direct collection under rule 1. If no order is passed within thirty days, the Commissioner is deemed to have accepted the contention.

What if the retailer later files a return?

The higher tax is still tax collected under section 236H, and section 236H(2) allows the retailer credit for it in computing its tax for the tax year in which it was collected. Rule 4(3) of the Tenth Schedule also provides that where returns are filed, the tax collected under rule 1 “shall be adjustable against the tax payable in the return filed for the relevant tax year”.

What does the distributor have to report?

Rule 7 of the Tenth Schedule says that where the withholding agent fails to give “complete or accurate particulars of persons not appearing on active taxpayers’ list” in its withholding statement, the Commissioner “shall initiate proceedings” against the withholding agent within thirty days of the statement being filed. So the rate matters for the invoice, and the buyer’s details matter for the statement.

Common mistakes

• Doubling 0.5% to 1%. The general rule in rule 1 increases a rate by one hundred percent, but the Table under the third proviso fixes 236H at 2.5% for a retailer off the list.
• Using 2.5% for every sale to a small shop. The rate depends on the buyer’s status on the Active Taxpayers’ List, not on the size of the shop.
• Leaving buyer details out of the statement. Rule 7 targets incomplete particulars of buyers off the list.

What to check in the official text

Read section 236H, Division XV of Part IV of the First Schedule, section 100BA and rules 1, 2 and 7 of the Tenth Schedule in the Income Tax Ordinance amended to 30 June 2026. Check each buyer’s status on the Active Taxpayers’ List at the time of sale.