As Pakistan enters Tax Year 2026, businesses and high-turnover individuals must once again evaluate whether minimum tax under Section 113 applies to them. Even if your business reports losses or enjoys exemptions, minimum tax may still be payable. Here’s a simple, interactive breakdown to help you understand when and how it applies.
🔍 What Is Minimum Tax Under Section 113?
Minimum tax is a turnover-based tax imposed when a taxpayer’s final income tax liability is zero or lower than the prescribed minimum percentage, despite having substantial business activity.
In simple terms:
If your turnover is high but your payable income tax is low (or nil), minimum tax kicks in.
👥 Who Does Section 113 Apply To in Tax Year 2026?
Minimum tax applies to the following categories:
✅ Covered Persons
• Resident companies
• Permanent establishments of non-resident companies
• Individuals with turnover of Rs100 million or more
• Associations of Persons (AOPs) with turnover of Rs100 million or more
📌 The Rs100 million threshold applies if crossed in Tax Year 2017 or any subsequent year.
⚠ When Does Minimum Tax Become Payable?
Minimum tax applies if any of the following reduce your tax liability:
✔ Business loss for the year
✔ Adjustment of previous years’ losses
✔ Tax exemptions
✔ Tax credits or rebates
✔ Allowances or deductions (including depreciation or amortization)
👉 Result:
• No tax payable OR
• Tax payable is less than the minimum percentage of turnover specified in Division IX, Part I of the First Schedule
❌ What Is NOT Included in “Tax Payable or Paid”?
For Section 113 purposes, the following taxes are excluded:
• Tax on deemed income treated as final discharge under Section 169
• Tax paid under Section 4B (Super Tax)
• Tax paid under Section 4C (Poverty Alleviation Tax)
🧮 How Is Minimum Tax Calculated?
Once Section 113 applies:
🔹 Step 1: Turnover Becomes Your Taxable Income
Your entire turnover from all sources is treated as taxable income.
🔹 Step 2: Apply Minimum Tax Rate
Tax is calculated using rates provided in Division IX, Part I of the First Schedule instead of normal income tax slabs.
🔄 Can You Adjust Minimum Tax in Future Years?
Yes—but with limits.
✔ Carry Forward Allowed
• If minimum tax paid exceeds actual tax liability, the excess can be:
o Carried forward for up to two succeeding tax years
o Adjusted against normal tax under:
Clause (1) of Division I, or
Division II of Part I of the First Schedule
📌 If minimum tax is paid due to zero tax payable, the entire amount is eligible for carry-forward.
📊 What Counts as “Turnover” Under Section 113?
Turnover includes gross receipts from all business activities, excluding sales tax, federal excise duty, and trade discounts.
✔ Included in Turnover:
• Gross sales of goods
• Gross service fees and commissions
• Gross contract receipts
• Company’s share in AOP receipts
• Business receipts from sale of immovable property (if taxable as business income)
❌ Excluded from Turnover:
• Amounts already taxed as final discharge of tax liability
📝 Key Takeaways for Taxpayers
• Minimum tax is not profit-based, it’s turnover-based
• Loss-making or exempt businesses may still pay tax
• Rs100 million turnover is the critical threshold
• Proper tax planning is essential to manage future adjustments
📢 Final Thought
For Tax Year 2026, Section 113 continues to play a major role in Pakistan’s tax regime by ensuring that high-turnover taxpayers contribute a minimum amount, regardless of reported profits. Understanding its scope can help you avoid surprises and plan smarter.
⚠ Disclaimer: This article is for general informational purposes only and does not constitute professional tax advice. Readers should consult a qualified tax advisor or the Federal Board of Revenue (FBR) for guidance specific to their individual or business circumstances. The rules and regulations described here are based on the Income Tax Ordinance, 2001 and may be subject to change.