What is section 236G advance tax and who collects it from distributors and wholesalers?

Section 236G is an advance income tax that a manufacturer or commercial importer adds to its invoice when it sells goods to a distributor, dealer or wholesaler. The seller collects it and the buyer bears it, but the buyer can count it towards its own income tax for the same tax year. This is why a distributor’s purchase invoice often shows a small income tax line on top of the price of the goods.

What does the law say?

Section 236G(1) of the Income Tax Ordinance, 2001 says that every manufacturer or commercial importer, at the time of sale to distributors, dealers and wholesalers, “shall collect advance tax at the rate specified in Division XIV of Part IV of the First Schedule, from the aforesaid person to whom such sales have been made.”

Section 236G(2) then says credit for the tax collected “shall be allowed in computing the tax due by the distributor, dealer or wholesaler on the taxable income for the tax year in which the tax was collected.”

Section 236G sits in Chapter XII of the Ordinance, headed “Transitional Advance Tax Provisions”. The section was added by the Finance Act, 2013.

Who has to collect it, and from whom?

The collecting side and the paying side are both fixed by the words of section 236G(1):

Role	Who, under section 236G(1)
Collects the tax	Every manufacturer or commercial importer
Pays the tax	Distributors, dealers and wholesalers who buy from them
When	At the time of sale
Rate	Division XIV of Part IV of the First Schedule

A sale by one distributor to another distributor, or by a wholesaler to a wholesaler, is not a sale by a manufacturer or commercial importer, so it is outside the words of section 236G(1). Sales by distributors and wholesalers onward to retailers are dealt with by a different section, section 236H, which is covered on its own page.

What does “distributor” mean?

Clause (18A) of section 2 defines a distributor as “a person appointed by a manufacturer, importer or any other person for a specified area to purchase goods from him for further supply”. Two features stand out: the person is appointed, and the appointment is for a specified area. A company’s appointed area distributor for Hyderabad fits these words.

The definitions in section 2 do not define “dealer” or “wholesaler”, and they do not define “commercial importer” either. The Ordinance leaves those words without a statutory definition in section 2, so they carry their ordinary meaning unless another provision says otherwise. This page does not try to fill that gap.

What rate is collected?

Division XIV of Part IV of the First Schedule, as amended to 30 June 2026, sets the rates that apply for tax year 2027 (1 July 2026 to 30 June 2027):

Category of sale	Rate
Fertilizers	0.7%
Other than fertilizers	0.1%

A proviso sets 0.25% on sales of fertilizer to distributors, dealers or wholesalers who appear on both the Active Taxpayers’ Lists issued under the Sales Tax Act, 1990 and the Income Tax Ordinance, 2001. A buyer not on the Active Taxpayers’ List pays a higher rate under the Tenth Schedule. The rates, including that higher rate, are set out in full on the related page on 236G rates.

Worked example (illustrative figures)

Imran runs a distributorship in Faisalabad, appointed by a detergent manufacturer for the Faisalabad district. In July 2026 he buys detergent worth Rs. 3,000,000 from the manufacturer. He is on the Active Taxpayers’ List. The figures are invented; the rate is the Division XIV rate.

1. Goods are “other than fertilizers”, so the rate is 0.1%.
2. Rs. 3,000,000 x 0.1% = Rs. 3,000.
3. The manufacturer collects Rs. 3,000 from Imran at the time of sale.

If Imran’s purchases for the whole of tax year 2027 come to Rs. 36,000,000, the tax collected at 0.1% is Rs. 36,000. Under section 236G(2), that Rs. 36,000 is allowed as credit when his tax for tax year 2027 is computed.

What if the goods are fertilizer?

The rate is 0.7% under Division XIV, or 0.25% if the buyer appears on both the income tax and sales tax Active Taxpayers’ Lists. On a Rs. 1,000,000 fertilizer purchase that is Rs. 7,000 at 0.7%, or Rs. 2,500 at 0.25% (illustrative figures).

What if I buy through a wholesaler rather than directly?

Section 236G(1) only reaches sales by a manufacturer or commercial importer. If you buy from another wholesaler, section 236G is not the section that applies to that purchase. Whether section 236H applies instead depends on whether you are treated as a retailer or as a wholesaler buying from a distributor or dealer, which the related pages cover.

Common mistakes

• Thinking the distributor collects 236G. Under section 236G(1) the manufacturer or commercial importer collects it. The distributor pays it.
• Treating it as a lost cost. Section 236G(2) gives credit against the buyer’s income tax for the tax year in which it was collected.
• Claiming it in the wrong year. The credit is for “the tax year in which the tax was collected”, not the year the goods are sold on.
• Assuming only listed sectors are covered. The sector list that used to limit the section was omitted by the Finance Act, 2024. See the related page on which goods are covered.

What to check in the official text

Read section 236G and clause (18A) of section 2 of the Income Tax Ordinance amended to 30 June 2026, together with Division XIV of Part IV of the First Schedule and its proviso. The consolidated text does not define “dealer”, “wholesaler” or “commercial importer” in section 2, so any argument about who counts as one should start from the words of the section itself.