Pakistan’s supply chain — from manufacturers to retailers — plays a critical role in delivering goods to end consumers. However, for decades, large segments of this chain have remained outside the tax net, resulting in massive revenue leakages.
To counter this, the Federal Board of Revenue (FBR) has aggressively deployed advance tax mechanisms under the Income Tax Ordinance, 2001. In Tax Year 2026, these provisions are being used as a key tool to document the economy and broaden the tax base.
Let’s understand how advance tax works across the supply chain and what it means for businesses.
🔍 Why Advance Tax on Supply Chain?
Traditionally, distributors, wholesalers, and retailers:
• Operated without proper tax registration
• Underreported income
• Escaped income tax enforcement
💡 Advance tax ensures that tax is collected upfront, even if the seller later underreports income.
🏭 Advance Tax on Sales to Distributors & Wholesalers (Section 236G)
Under Section 236 of the Income Tax Ordinance, 2001 (updated for TY 2026):
📌 Who Collects the Tax?
• Manufacturers
• Commercial importers
📌 From Whom?
• Distributors
• Dealers
• Wholesalers
📌 When?
• At the time of sale
📌 Key Benefit
✔ The tax collected is adjustable and credited while computing annual income tax of the buyer.
📊 Tax Rates Under Section 236G (ATL Persons)
| Category of Sale | Advance Tax Rate |
| Fertilizers | 0.7% |
| Other than Fertilizers | 0.1% |
✅ Special Relief for Fertilizer Sector
If distributors, dealers, or wholesalers of fertilizers:
• Appear on both ATL (Income Tax) and Sales Tax Active Taxpayers List,
➡ Reduced rate applies: 0.25%
🛒 Advance Tax on Sales to Retailers (Section 236H)
To bring retailers into the tax net, Section 236H imposes advance tax on retail sales.
📌 Who Collects the Tax?
• Manufacturers
• Importers
• Distributors
• Dealers
• Wholesalers
📌 From Whom?
• Retailers
• In some cases, wholesalers purchasing from distributors/dealers
📌 Tax Rate (ATL)
➡ 0.5% on gross amount of sales
✔ This tax is also adjustable against the retailer’s annual income tax liability.
🔄 Is Advance Tax Final or Adjustable?
✅ Not a final tax
Advance tax collected under:
• Section 236
• Section 236G
• Section 236H
is fully adjustable while filing the income tax return for the relevant tax year.
🚨 What About Non-ATL Persons?
⚠ Important Note:
• The rates mentioned above apply only to ATL (Active Taxpayers List) persons
• Non-ATL rates are significantly higher
• FBR uses higher rates as a penalty to force registration and filing
👉 Businesses should verify ATL status before transactions to avoid excessive tax deductions.
📈 How This Helps Broaden the Tax Base
✔ Forces undocumented businesses into the system
✔ Creates transaction trails across the supply chain
✔ Encourages NTN registration and return filing
✔ Reduces tax evasion at retail and wholesale levels
📢 Advance tax has become one of FBR’s strongest enforcement tools in 2026.
✅ Key Takeaways for Businesses
• Always maintain ATL status
• Keep withholding tax certificates
• Adjust advance tax in annual returns
• Ensure proper documentation across sales channels
💡 Failing to comply increases cost of doing business and invites audits.
📌 Disclaimer
This article is for informational purposes only and does not constitute legal or tax advice. Tax rates and laws may change. Readers are advised to consult FBR notifications, the Income Tax Ordinance, 2001, or a qualified tax professional for case-specific guidance.