Why minimum tax exists
Some businesses report very low profits year after year, or losses, while trading in large volumes. Minimum tax makes sure a business with real turnover pays at least some tax. It applies to companies, AOPs and individuals whose turnover crosses the threshold (Rs 100 million for individuals and AOPs).
How it's calculated
- Work out your normal income tax on taxable profit.
- Work out minimum tax: turnover × the rate for your sector.
- Pay whichever is higher.
| Rate | Who |
|---|---|
| 1.25% | All cases not listed below |
| 0.75% | Gas distribution companies above Rs 1 billion turnover, PIA, poultry industry |
| 0.5% | Oil refineries, oil marketing companies, motorcycle dealers |
| 0.25% | Rice mills, flour mills, petroleum agents and distributors, tier-1 integrated retailers, e-commerce, used-vehicle dealers |
Sector lists and reduced rates are amended often, including through clauses in the Second Schedule. Confirm your sector's rate before relying on it.
Example
A distribution business has turnover of Rs 200 million but taxable profit of only Rs 5 million. Normal tax on that profit for an AOP is Rs 1,370,000. Minimum tax at 1.25% is Rs 2,500,000. Since that's higher, the business pays Rs 2,500,000.
Carrying the excess forward
When minimum tax is more than your normal tax, the difference can usually be carried forward for up to three tax years and adjusted against normal tax in a year when profits are higher. The adjustment is limited, so that tax in the later year doesn't fall below that year's minimum. Keep a schedule of these carried-forward amounts. They're easy to lose track of.
What counts as turnover?
Turnover generally means gross sales or receipts, excluding sales tax and federal excise duty, minus trade discounts. It includes receipts from services and commissions. Where a separate final tax applies to certain receipts, those receipts may be excluded.
Planning tips
If you're regularly paying minimum tax, look at your margins and expense records. Sometimes the profit is genuinely low. Sometimes expenses are being claimed that FBR would disallow anyway. A tax adviser can help you see whether restructuring, better record-keeping or a different business form would help.
Who usually ends up paying minimum tax
Minimum tax mostly bites businesses with thin margins and high volumes. Distributors, wholesalers, traders in commodities and some manufacturers often earn 1% or 2% on sales. For them, 1.25% of turnover can be close to, or even more than, their whole profit. That's why several of these sectors have lobbied for, and received, the lower 0.25% and 0.5% rates.
Retailers and service businesses with healthier margins rarely pay minimum tax, because their normal tax on profit is already higher than 1.25% of sales.
A quick way to check your exposure
Divide your expected taxable profit by your turnover. If the result is below roughly 4% to 5% for an AOP or individual, or below about 4.3% for a company paying 29%, minimum tax is likely to apply. The exact break-even depends on your slab, so run both numbers through the calculator to be sure.
Minimum tax and losses
A business that makes a loss still pays minimum tax on turnover. The loss itself can be carried forward under the normal rules, while the minimum tax paid can be carried forward separately within its own limits. The two are tracked differently, so keep clear records of each.
Related calculators
- Business tax calculator, to work out the normal tax figure for an individual or AOP.
- Corporate tax calculator, for the normal tax figure for a company.
- Super tax calculator, if your income is large enough to attract super tax too.
Frequently asked questions
What is the minimum tax rate on turnover in 2026-27?
1.25% of turnover in most cases, with reduced rates of 0.75%, 0.5% and 0.25% for listed sectors.
Do I pay both minimum tax and normal tax?
No. You pay whichever is higher.
Can excess minimum tax be carried forward?
Generally yes, for up to three tax years, within limits.
Does it apply to individuals?
It applies to individuals and AOPs whose turnover is Rs 100 million or more, and to companies.
Rates: Income Tax Ordinance 2001 and its schedules as amended by the Finance Act 2026, plus FBR's withholding tax rate card for Tax Year 2027. Results are estimates. Check with FBR or a tax adviser before acting on them.