ISLAMABAD: Pakistan has doubled the minimum turnover tax on pharmaceutical distributors, dealers, sub-dealers and wholesalers to 0.5% from July 1, 2026, putting additional pressure on a drug supply chain already operating on very narrow profit margins.
The new rate applies during the 2026-27 fiscal year, up from 0.25% in the previous fiscal year. The final rate is lower than the 1.25% increase initially proposed during the budget process after industry representatives raised concerns about the impact on distributors.
Under the Finance Act 2026, the minimum tax under Section 113 of Pakistan’s Income Tax Ordinance is set at 0.5% for pharmaceutical distributors, dealers, sub-dealers and wholesalers.
Companies receiving the reduced rate must be listed on the Active Taxpayers’ Lists under the country’s income and sales tax laws. Industry representatives said the government had initially considered increasing the rate from 0.25% to 1.25%, a fivefold jump.
The pharmaceutical industry then raised the issue with the Special Investment Facilitation Council and the Budget Anomaly Committee, arguing that such an increase could put severe pressure on distributors with limited profit margins.
The discussions resulted in the lower 0.5% rate. Former Pakistan Pharmaceutical Manufacturers Association Chairman Tauqeer Ul Haq said the original 1.25% proposal could have threatened the financial health of distributors and created additional pressure on the medicine supply chain.
Pharmaceutical distribution is a high-volume, low-margin business. Industry representatives say distributors can operate with profit margins of less than 1% after taxes, transportation and other operating costs.
The higher turnover tax comes alongside several measures that provide relief to parts of the pharmaceutical industry.
The government has reduced duties on several pharmaceutical inputs, including active pharmaceutical ingredients such as APIs, used to manufacture medicines. Budget documents also identify duty exemptions for critical cancer-related APIs.
The National Assembly’s Finance and Revenue Committee said the budget includes measures intended to provide tax relief and support economic activity.
At the same time, pharmaceutical companies face challenges in overseas markets. Pakistan’s pharmaceutical exporters have been affected by trade difficulties, including disruptions along the Pakistan-Afghanistan border.
Afghanistan has historically been an important market for Pakistani pharmaceutical products. Continued border and trade restrictions could make it harder for the country’s pharmaceutical industry to expand exports toward its $2 billion target.
However, the immediate concern is the higher tax on turnover for distributors. Because the tax is calculated against sales rather than profit, even a relatively small rate increase can add pressure to businesses operating with very thin margins.
The industry will now have to absorb the higher tax while dealing with transportation costs, export challenges and the broader pressures facing Pakistan’s pharmaceutical supply chain.
