Section 236A of the Income Tax Ordinance, 2001 imposes a legal obligation on the person conducting a public auction or auction by tender to collect advance tax from the successful bidder or purchaser.
This mechanism ensures that tax is collected at the source of transaction, especially where sale proceeds arise from public or government-related auctions.
The provision plays a significant role in broadening the tax base and ensuring documentation of high-value transactions across public departments and corporate entities.
Text of Section 236A(1): Core Provision
“Any person making sale by public auction or auction by a tender of any property or goods (including property or goods confiscated or attached) either belonging to or not belonging to the Government, local Government, any authority, a company, a foreign association declared to be a company under section 80(2)(b)(vi), or a foreign contractor or consultant or consortium or Collector of Customs or Commissioner of Inland Revenue or any other authority, shall collect advance tax, computed on the basis of sale price of such property and at the rate specified in Division VIII of Part IV of the First Schedule, from the person to whom such property or goods are being sold.”
Key Interpretation of the Provision
Who Collects the Tax:
The auctioneer or the authority conducting the sale — whether private, public, or governmental — must collect advance tax at the time of sale.From Whom:
The purchaser or successful bidder is liable to pay advance tax on the sale price of the auctioned property or goods.Rate of Tax:
The applicable rate is prescribed in Division VIII of Part IV of the First Schedule (as per the latest Finance Act).
Explanation Added by Finance Amendment
To clarify the scope, the Ordinance explicitly provides:
The term “sale by public auction or auction by tender” also includes the renewal of a license previously sold through auction.
Where payment is received in instalments, the advance tax must be collected with each instalment.
This ensures that deferred or installment-based transactions are fully covered under the law.
Credit and Adjustment of the Collected Tax
Under sub-section (2), the advance tax collected at auction is adjustable against the purchaser’s total income tax liability for that year.
However, for taxpayers falling under Section 98B or Section 145 (special accounting years or cessation cases), credit shall be allowed in the tax year where the said event occurs.
Definition of “Sale of Property” for this Section
The law broadly defines sale of property to include:
Any transfer or award of lease rights, including the right to collect tolls, fees, or other levies, by whatever name called.
Thus, even leasing rights — such as toll collection rights or license renewals — are subject to advance tax collection under this section.
Sub-section (3): Final Tax on Toll Collection Leases
As per the amendment, tax collected on the lease of the right to collect tolls constitutes final tax.
This means that no further adjustment or refund is allowed against other income, and the liability is considered fully discharged upon deduction.
Practical Example
If a contractor wins the bid to collect tolls for one year at a bid amount of PKR 50 million, and the applicable advance tax rate is 10% (for example):
50,000,000×1050,000,000 × 10% = PKR 5,000,000
The auctioneer must collect PKR 5 million as advance tax and deposit it with FBR.
This amount will be treated as final tax in case of toll collection rights.
Responsibilities of the Auctioning Authority
Deduct or collect advance tax at the time of sale or acceptance of bid.
Deposit the collected amount in the Federal Treasury under proper head of account.
Maintain auction records, challans, and bidder details for audit verification.
File a withholding statement under Section 165 through IRIS.
Failure to do so can expose the authority to penalties under Section 182 and default surcharge under Section 205.
Purpose of Section 236A
The provision aims to:
Strengthen tax documentation for auction-based transactions.
Prevent tax evasion in public and private auctions.
Ensure advance collection of tax before ownership transfer.
Capture transactions from non-filers and unregistered participants.
Section 236A of the Income Tax Ordinance, 2001 is a vital tool in Pakistan’s tax enforcement framework. It ensures that advance tax is collected upfront at every public auction or tender-based sale — from confiscated goods to toll collection rights.
At Tanweer Habib & Co., we provide professional tax advisory, compliance support, and documentation assistance for clients engaged in auction transactions, ensuring compliance with FBR’s withholding and reporting standards.
FAQs on Section 236A Advance Tax on Sale by Auction
1. What is Section 236A about?
It governs the collection of advance tax at the time of sale by public auction or tender, including license renewals and lease rights.
2. Who is responsible for collecting the tax?
The person or authority conducting the auction, such as a government department, collector, or private auctioneer.
3. From whom is the tax collected?
From the successful bidder or purchaser at the time of auction or signing of tender documents.
4. What is the rate of advance tax under Section 236A?
The rate is prescribed in Division VIII, Part IV of the First Schedule of the Ordinance (updated annually through the Finance Act).
5. Does Section 236A apply to both goods and immovable property?
Yes, it applies to any property or goods, including confiscated, attached, or government-owned assets.
6. What if the auction is conducted by a private body?
Private auctioneers are equally bound to collect and deposit advance tax under this section.
7. Is the tax collected under Section 236A adjustable?
Yes, except for toll collection leases, where it is treated as final tax.
8. What happens if payment is made in instalments?
Tax must be collected with each instalment received, not merely at the initial payment.
9. Does the law include renewal of licenses?
Yes. Renewal of a license previously sold through auction is deemed a new sale for tax purposes.
10. What is meant by “sale of property” in this section?
It includes awarding of any lease rights, such as toll collection or market fee collection.
11. When should the tax be deposited?
The collected tax must be deposited into the Government Treasury within the statutory period, typically by the 15th of the following month.
12. What statement must be filed after tax collection?
A withholding statement under Section 165 through the FBR IRIS system.
13. Can the bidder claim credit of tax paid?
Yes, the bidder can claim adjustment against total tax liability for that year, except in final tax cases.
14. What if the auctioning authority fails to collect the tax?
It will be treated as assessee-in-default and liable to penalty and default surcharge.
15. Are foreign companies or contractors covered?
Yes, the section explicitly includes foreign contractors, consultants, and consortiums operating in Pakistan.
16. What if the property belongs to a government department?
Even if the property belongs to government, the auctioning officer must collect tax from the purchaser.
17. Can an exempt entity avoid the deduction?
Only if it produces a valid exemption certificate issued by the Commissioner Inland Revenue.
18. Is the tax collected under this section refundable?
Refund can be claimed only if it is adjustable; no refund is allowed for final tax cases such as toll collections.
19. How is “auction by tender” defined?
It includes any sale or license awarded through competitive bidding or tender process, whether open or restricted.
20. Why is Section 236A significant for businesses?
It ensures early tax collection, promotes transparency, and prevents non-declaration of auction income in Pakistan’s formal tax system.
