Tax Laws Applying to a Pharmacy Business in Pakistan: A Complete Guide for 2026

The pharmacy business in Pakistan—whether a traditional Medical Store in Lahore, a modern Online Pharmacy in Pakistan, or a growing Online Medical Store in Pakistan—operates within a complex and evolving tax framework. For entrepreneurs looking to establish a Pharmacy in Lahore or expand their Pharmacy in Pakistan operations, understanding the applicable tax laws is not just about compliance—it's about business sustainability and profitability.

This comprehensive guide breaks down the key taxes, recent developments, and practical considerations for pharmacy owners across Pakistan.

Overview of the Pakistani Tax System for Pharmacies

Pharmacies in Pakistan are subject to multiple layers of taxation administered primarily by the Federal Board of Revenue (FBR). The tax structure distinguishes between different categories of medicines and involves various types of taxes:

Tax Type	Applicable Rate	Relevant Authority
Sales Tax (Allopathic Medicines)	1% (concessional)	FBR
Sales Tax (Herbal/Homeopathic)	18% (standard rate)	FBR
Income Tax (Corporate)	29%-35% depending on company size	FBR
Withholding Tax (Supply Chain)	0.1%-0.5% on sales	FBR
Withholding Tax (Imports)	0%-6% depending on item	FBR
Advance Tax (Traders)	0.5%-1% on certain sales	FBR

1. Sales Tax: The Most Critical Consideration

The 1% Concessional Rate for Allopathic Medicines

According to recent amendments through the Finance Act 2022, drugs registered under the Drugs Act 1976 are subject to sales tax at 1% under Entry No. 81 and 82 of the Eighth Schedule of the Sales Tax Act, 1990. This concessional rate applies to:

Allopathic medicines registered with DRAP
Pharmaceutical drugs falling under Chapter 30 of the First Schedule
Prescription medications

The 18% Standard Rate for Non-Allopathic Medicines

A significant disparity currently exists in the taxation system governing pharmaceutical products. While allopathic medicines enjoy the 1% concessional rate, homeopathic, herbal, Unani, and Ayurvedic medicines are subject to the standard 18% general sales tax.

This unequal treatment has drawn criticism from industry stakeholders. The Businessmen Panel (BMP) of the FPCCI has called for eliminating this tax discrimination, arguing that:

The distinction stems from outdated provisions referencing the now-repealed Drugs Act of 1976
The DRAP Act 2012 now regulates all therapeutic goods uniformly
Millions of Pakistanis rely on affordable alternative medicines
The current policy contradicts healthcare accessibility goals

Products Beyond Medicines

As highlighted by tax consultants, pharmacies often deal in products beyond just medicines, including:

Medical equipment and devices
Health supplements and vitamins
Personal care products
Baby care items

These items may be subject to standard sales tax rates (17-18%), requiring pharmacies to maintain proper inventory categorization systems for accurate tax reporting.

Sales Tax Registration Threshold

Businesses with annual turnover exceeding PKR 60 million (approximately) must register for sales tax with the FBR. Registration enables pharmacies to:

Issue proper tax invoices
Claim input tax credits on purchases
Operate transparently in the regulated healthcare sector

2. Income Tax: Corporate and Individual Obligations

Corporate Income Tax Rates

For pharmacies operating as registered companies, income tax rates vary based on company size and status:

Company Category	Tax Rate (Effective July 2024)
Small Companies (turnover ≤ PKR 100 million)	29%
General Companies	35%
Banks and Financial Institutions	40%
Listed Companies	Minimum 2% of turnover

Tax on Distributors: A Significant Concession

A notable tax benefit exists for pharmaceutical distributors. Under Clause 24A of Part II of the Second Schedule of the Income Tax Ordinance 2001, pharma distributors benefit from a reduced income tax rate of just 1% of the gross amount of payments. The FBR's Tax Expenditure Report 2024 revealed that pharmaceutical distributors received over PKR 14.53 billion in tax concessions during the last fiscal year.

Withholding Tax on Supply Chain Transactions

As a documentation measure, the government requires withholding tax collection on sales to distributors and retailers:

Sales to distributors: 0.1% withholding tax
Sales to retailers: 0.5% withholding tax

This tax is adjustable against the final tax liability of the traders and is not an additional tax burden but rather an advance payment mechanism. The FBR has clarified that this measure applies to the income of traders in the supply chain, not as a tax on medicines themselves.

Advance Tax on Traders

For pharmacies operating as sole proprietorships or partnerships, advance tax may apply based on the value of goods sold. These rates are typically lower than the income tax rates for corporate entities.

3. Import-Related Taxes (For Pharmacies Importing Medicines)

Withholding Tax on Imports

Under Section 148 of the Income Tax Ordinance, withholding tax applies to imported goods. However, the FBR has granted exemptions for specific medicines. For instance, Cystagon/Systagon capsules imported for personal therapeutic use of immediate family members are exempt from withholding tax when accompanied by an NOC from the Ministry of National Health Services.

Customs Duty

Import duties on pharmaceutical products and raw materials typically range from 0% to 25%, with many life-saving medicines and medical equipment eligible for zero-duty concessions. The China-Pakistan Free Trade Agreement (CPFTA) has also reduced duties on many pharmaceutical imports from China.

Regulatory Coordination

The Drug Regulatory Authority of Pakistan (DRAP) coordinates with FBR on import matters. The FBR has emphasized that medicine prices are controlled by DRAP regulations, and tax measures targeting traders' income do not directly impact medicine prices.

4. Special Considerations for Online Pharmacies

E-Commerce Tax Framework

For entrepreneurs establishing an Online Pharmacy in Pakistan or an Online Medical Store in Pakistan, additional considerations apply:

Digital services taxation may apply to online platforms
Point of Sale (POS) integration with FBR's real-time reporting system is increasingly required for retail pharmacies
E-invoicing requirements for transactions exceeding certain thresholds

The Digital Economy Challenge

The FBR has been expanding documentation measures to the pharmaceutical sector, including online operations. The same withholding tax rates (0.1% for distributor sales, 0.5% for retailer sales) apply to digital transactions.

5. The Herbal vs. Allopathic Tax Disparity: A Critical Issue

Current Situation

As reported in May 2025, a significant disparity exists in the taxation system governing pharmaceutical and health-related products:

Allopathic medicines: 1% sales tax
Homeopathic and herbal medicines: 18% sales tax

Industry Demands

The Homeopathic Pharmaceutical and Chemist Association Pakistan (HPCA) has demanded a uniform 1% sales tax rate on all medicines—whether allopathic, homeopathic, or herbal—to ensure fairness, accessibility, and consistency in healthcare taxation.

The Legal Loophole

The issue stems from outdated provisions in the Eighth Schedule of the Sales Tax Act, 1990, particularly Entry No. 81, which only refers to drugs registered under the now-repealed Drugs Act of 1976. The DRAP Act, 2012, which regulates all therapeutic goods—allopathic, homeopathic, herbal, and nutraceutical—has not been fully reflected in the sales tax framework.

Potential Changes in Budget 2025-26

Industry stakeholders have urged the government to include amendments in the Finance Bill 2025-26 to harmonize tax rates across all DRAP-registered medicines. If implemented, this would significantly reduce the tax burden on herbal and homeopathic pharmacies.

6. Registration and Compliance Requirements

Sales Tax Registration

For pharmacies exceeding the turnover threshold:

Register with FBR through the IRIS online portal
Obtain Sales Tax Registration Number (STRN)
Install FBR-integrated POS systems (for retail pharmacies)
File monthly sales tax returns by the 15th of each month

Income Tax Registration

All pharmacies must:

Obtain National Tax Number (NTN)
File annual income tax returns
Maintain proper books of accounts
Deduct and deposit withholding taxes where applicable

Professional Tax

In some provinces, pharmacies may be subject to professional tax based on employee count and business classification.

7. Penalties for Non-Compliance

Failure to comply with tax laws can result in:

Monetary penalties ranging from PKR 25,000 to PKR 500,000 for registration defaults
Late filing penalties of up to 10% of tax due
Audit scrutiny and potential assessment adjustments
Blacklisting of NTN for persistent defaulters
In severe cases, legal proceedings under tax laws

8. Future Outlook: What Pharmacy Owners Should Watch

Budget 2025-26 Expectations

Potential harmonization of sales tax rates across all medicine categories
Possible expansion of documentation measures
Digital integration requirements for all pharmacies
Enhanced scrutiny of supply chain tax compliance

Long-Term Trends

Increased automation of tax compliance
Real-time reporting requirements
Greater coordination between DRAP and FBR
Potential incentives for e-commerce pharmacies

Practical Checklist for Pharmacy Owners

For New Pharmacies:

Register for NTN with FBR
Register for Sales Tax if turnover exceeds threshold
Obtain DRAP license and ensure all medicines are properly registered
Install FBR-integrated POS system if required
Understand product categorization for correct sales tax application
Open business bank account for all transactions

For Existing Pharmacies:

Review product mix to ensure correct sales tax rates are applied
Verify that all imports have proper duty and tax documentation
Ensure withholding tax is correctly deducted and deposited
File monthly and annual returns on time
Consider engaging a tax consultant for specialized advice

Conclusion: Navigating the Tax Landscape

Operating a Pharmacy in Lahore, a Medical Store in Lahore, or an Online Medical Store in Pakistan requires careful attention to Pakistan's evolving tax framework. The current system presents both opportunities—such as the 1% sales tax on allopathic medicines and the 1% income tax concession for distributors—and challenges, particularly the 18% sales tax disparity affecting herbal and homeopathic products.

As the government continues to refine tax policies, pharmacy owners should:

Stay informed about legislative changes, particularly upcoming budget announcements
Maintain accurate records of product categorization and sales
Seek professional advice from tax consultants specializing in the pharmaceutical sector
Plan for digital integration as the FBR moves toward real-time reporting
Advocate for fair policies through industry associations

With proper planning and compliance, pharmacy businesses can thrive within Pakistan's tax framework while contributing to accessible healthcare for millions of Pakistanis.

For Legal Assistance in Lahore - Visit: https://sohaibnsultan.pk/