Minimum tax under Section 113 of the Income Tax Ordinance 2001 applies to companies and certain individuals in Pakistan that declare zero profit or a tax loss but still have significant turnover. If you run a business and claim losses every year, FBR may still require you to pay minimum tax. Here is everything you need to know.

What is Minimum Tax Under Section 113?

Section 113 provides that if a company's normal income tax liability (after all deductions and exemptions) is less than 1.5% of its gross turnover, the company must pay a minimum tax equal to 1.5% of its turnover. This prevents businesses from permanently declaring losses to avoid tax while reporting high revenue.

Who Does Minimum Tax Apply To?

Taxpayer TypeApplies?Rate
Private limited companiesYes1.5% of gross turnover
Public limited companiesYes1.5% of gross turnover
AOPs with turnover above Rs. 100 millionYes1.5% of gross turnover
Individual business owners (non-corporate)Only if notified by FBR1.5% of gross turnover
Banks and financial institutionsYes (higher rates apply)Different rate under Sec 113(1)(b)
Service sector companies (specific sectors)YesSector-specific rates

How Minimum Tax is Calculated

Step 1: Calculate normal income tax liability based on taxable profit.

Step 2: Calculate 1.5% of gross turnover (total revenue, not profit).

Step 3: Pay whichever is higher.

Example: A private limited company with Rs. 50 million turnover and Rs. 2 million declared loss:

Can Minimum Tax be Carried Forward?

Yes. If minimum tax paid in a year exceeds the normal tax liability, the excess can be carried forward and adjusted against normal tax liability in the next 5 tax years. This is called the excess minimum tax credit under Section 113(2). So if your business becomes profitable in future years, you get credit for the minimum tax you paid during loss years.

Exemptions from Minimum Tax

Certain businesses are exempt from minimum tax under the Second Schedule:

Minimum Tax vs Turnover Tax — What is the Difference?

Section 113 (minimum tax) applies when normal tax is below 1.5% of turnover. Section 113A (turnover tax) applied to specific sectors. Both are variations of the same concept — ensuring companies with significant revenue pay some minimum level of tax regardless of declared profits.

How to File Minimum Tax in FBR Return

Minimum tax is calculated and declared in the company's annual income tax return (Form IT-2 for companies). The return must show: total gross turnover, normal tax liability, minimum tax calculation (1.5% of turnover), and the higher of the two amounts as tax payable.

Frequently Asked Questions

If our company made a loss, do we still have to pay income tax?
Yes, if you are a company with significant turnover. Minimum tax at 1.5% of gross turnover applies even in loss years under Section 113. The logic is that a company cannot have significant revenue without some income, and declaring a loss every year is a common tax planning technique FBR aims to prevent through minimum tax.
Does minimum tax apply to small businesses?
Section 113 primarily targets companies (Pvt Ltd, Public Ltd) and large AOPs. Individual proprietors and small AOPs below the threshold may not be subject to minimum tax. However, FBR can bring any business person under Section 113 through a notification. Consult a tax advisor to check your specific situation.
Can WHT deposits be offset against minimum tax?
Yes. Adjustable withholding taxes paid during the year are first credited against the normal tax liability. If the normal tax (or minimum tax) is still due after WHT credits, the balance must be paid. Minimum tax cannot be reduced below zero by WHT credits, but excess WHT is refundable.

Need Help With Company Tax Return and Minimum Tax?

Kamboh Associates files corporate income tax returns and handles minimum tax calculations for private limited companies across Pakistan.