Islamabad: The Federal Board of Revenue (FBR) has proposed a significant increase in the minimum tax rate applicable to distributors, wholesalers, dealers, and sub-dealers operating in key consumer sectors, including locally manufactured mobile phones, packaged food products, fertilizers, sugar, and electronics.
The proposal has been introduced through amendments in Clause 24D of the Finance Bill 2026, which seeks to revise the minimum tax regime under Section 113 of the Income Tax Ordinance, 2001.
Minimum Tax Rate Increased to 0.5%
Under the proposed amendment, eligible distributors and supply-chain intermediaries dealing in specified sectors will be subject to a minimum turnover tax of 0.5%, compared to the previous reduced rate of 0.25% available to documented businesses meeting certain compliance requirements.
The proposed increase effectively doubles the minimum tax burden for affected businesses, representing a 100% increase in the tax rate.
The revised rate will apply to distributors and wholesalers dealing in:
- Locally manufactured mobile phones
- Packaged food products
- Fertilizers
- Sugar
- Electronics
No Direct Tax on Mobile Phone Buyers
Despite widespread reports suggesting that the government has imposed a new tax on mobile phones, the proposed amendment does not introduce a direct tax on consumers purchasing mobile phones or electronics.
Instead, the measure targets distributors and supply-chain entities through a higher minimum turnover tax. Retail customers will not be charged a separate 0.5% tax when purchasing a mobile phone or other covered products.
Could Prices Increase?
While consumers will not face a new direct tax, industry experts believe some businesses may choose to pass part of the increased tax cost on to customers through slightly higher prices.
For example, on a mobile phone priced at Rs. 50,000, the difference between the previous 0.25% rate and the proposed 0.5% rate amounts to approximately Rs. 125. However, the actual impact on retail prices may vary depending on market competition, profit margins, and business strategies.
Some distributors may absorb the additional cost to remain competitive, while others could incorporate it into product pricing.
Conditions for Reduced Tax Rate
The proposed 0.5% minimum tax rate will be available only to taxpayers who are listed on the Active Taxpayers List (ATL) under both:
- The Income Tax Ordinance, 2001
- The Sales Tax Act, 1990
Businesses failing to meet these documentation and compliance requirements may remain subject to the standard minimum tax provisions under Section 113.
Understanding Section 113
Section 113 of the Income Tax Ordinance imposes a minimum tax based on turnover rather than profitability. This means businesses must pay a prescribed minimum amount of tax even if they report low profits or losses.
The provision is intended to ensure that registered businesses contribute a minimum level of tax revenue regardless of their declared income.
Finance Bill 2026 Focuses on Documentation
The proposed increase reflects the government’s continued emphasis on documentation of the economy and tax compliance within major supply chains. By linking preferential tax treatment to ATL status and documentation requirements, the FBR aims to encourage businesses to remain fully compliant with tax laws.
If approved by Parliament, the revised minimum tax rate will become effective from Tax Year 2026.
