Tax Year 2012

Short Notes
On
SALES TAX

Topics Covered:

Numerical Portion

Theoretical portion

BY : Kashif Nawaz Jakhar

Contact No# 0331-4791167
 SALES TAX

PREFACE
Al-Hamd-O-Lillah, the 2nd addition of Short Notes on Sales Tax
has been completed. These notes have been prepared under the
senior guidance of my dearest teacher Mr. Imran Shehzad (ACA),
who guided me through the way in the preparation of such quality
notes for the students of Module-C.
In these note, I covered almost all the material areas covering upto
20 to 30 marks in the paper including numerical calculations and
fair presentations of the conceptual queries frequently asked by the
ICAP-Examiner.

I try to retain the focus of the ICAP-examiner in paper construction

relative to the marks allocation as:

Topics Marks
Sales Tax Numerical 10-15
Conceptual queries 10-20

I recommend to study these notes with reference to

INCOME TAX & SALES TAX Khalid Petiwalas Notes.

I hope my efforts will help you to retain maximum marks in your

examination.
Utmost efforts have been made to make these notes free from
errors, yet there is always a room for improvement. Any suggestion
from you will highly be appreciated.

Kashif Nawaz

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 SALES TAX

SALES TAX
Gross Sales Tax @ 16 %
Example :

Sr. No. Particular Value GST (%) GST Value Increase GST
1 Fans 50,000 16% 8000 58,000
2 AC 50,000 16% 8000 58,000
100,000 16,000 116,000

NOTE :
Tax on sale = Output Tax Collect
Tax on Purchase = Input Tax Paid

Point to Remember

Income Tax Direct Tax

Sales Tax Indirect Tax
Paid by other person

Note :
Except consumer every person pays two times tax.

e.g.
Mr. Kashif purchased goods from Mr. Rameez. Kashif paid
input tax to Mr. Rameez. He also sold goods to Mr. Haseeb and
collect output tax . which he paid into NBP.
so, Input Tax paid
Output Tax paid

Kashif Rameez

NBP
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 SALES TAX

Example :

Mr. Y purchased good worth Rs. 100,000 from Mr. Z. He

paid input Tax Rs. 16000. He sold these goods to Mr. X for
Rs. 120,000 and collect output tax Rs. 19200 .
Calculation of Tax liability of Mr. Y

Purchase. Rs.100,000 Sale. Rs. 120,000

Z Y X

Amount Paid. Rs.116,000 Amount Received.

to Z Rs.139,200 From X

Requirement :
I. Calculate amount to be paid and amount to be
received .
II. Calculate Tax liability of Mr. Y
Solution:

I. Calculation Of amount received and paid.

Purchase Price = 100,000 Sale Price = 120,000

Tax ( 16% ) = 16000 Tax ( 16% ) = 19200
Amount to be Paid 116,000 Amount to be received 139,200

II. Calculation of Tax Liability :

Sale ( out put Tax ) = 19200 20,000 X 16% = 3200

Purchase ( input Tax ) = (16000)
Tax Liability 3200 .

= Sale purchase
= 120,000-100,000
= 20,000

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Example : { sale by one person is the purchase of other person }

Assume Custom duty is included

Persons Purchase Input Tax Sale Output Tax NBP

( 16% ) ( collect )
Importer 10,000 1600 12,000 1920 1600
(X) 1920
Wholesaler 12,000 1920 15,000 2400 480 = 2400 - 1920
(Y)
Retailer 15,000 2400 20,000 3200 800 = 3200 - 2400
(Z)
Consumer 20,000 3200
(K)
3200

EXAM FOCUS POINT :

There are two possible ways in which the

data will be given in Exam.
Then calculation of sales Tax ( assume figures )

Excluded sales Tax = 20,000 X 16% = 3200

&

Inclusive of Sales tax = 23,200 X 0.16/1.16 = 3200

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!!!!!!!! IMPORTANT RULES OF SALES TAX !!!!!!

1. Sales Tax Liability = Output Tax input Tax

2. Tax Fraction Formula = Amount X 16 / 116
3. The Person must be a registered person
4. He has paid the Tax
5. The activities must be Taxable
6. Goods Must be taxable
7. Input tax can be claimed for last 6 tax periods
8. Input tax on fixed assets shall be claimed in 12 tax periods
9. He holds invoice of Tax
10. No input tax on the fake invoice
11. No input tax on vehicle ( otherwise as an inventory )
12. Input Tax can be claimed on accrual basis
( must be paid with in 180 days )
13. All payments > Rs. 50,000 must be through banking channel
14. No input Tax on exempt goods
15. Common Tax shall be allowed in proportion to sale
16. Input Tax is restricted upto 90% of output Tax
17. Tax also be payable on drawings , taken up by the employees
18. No input Tax , if Tax is not paid by the supplier .
( To whom you have paid the Tax )

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Explanation of the Rules :

Person:
A person can be a
Individual
AOP
Company
But he must inform that from which category he belongs.
Categories :
Retailer
importer
Exporter
wholesaler
Manufacturer
Registered Person: ( Ref. book page # 598 )
how to get register
Rules For Registration :

1. Compulsory Registration
2. Voluntary Registration
1. Compulsory Registration :
a) For the followings, registration is compulsory
without any condition.
o Importer
o Distributor
o Wholesaler
b) For Manufacturer & Retailer :

Voluntarily:
If turnover of 12 months is less
than (<) 5 million.
Compulsory:
If turnover of 12 months exceeds
(>) 5 million.

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2. Voluntary Registration :
If a person wants , he can be a
registered person.
Note :
A unregistered person cant claim or collect the tax.
He cant issue the invoice. But he can pay the sales Tax.
Process of Registration :
If a person wants to be a person
the he should follow the following procedure.
Assume he lives in Lahore,
Application for registration will be
submitted to LRO ( local registration office)
LRO will send this application to CRO
( central registration office ). They can
directly inform the person about
registration or rejection.

Note. ( in Urdu )

aik person, aik waqt main aik say ziada jaga

per register ho sakta hai. means
As a wholesaler
As a importer etc.
usy for each category separately , sales tax number issue kiye ja
sakty hain.
aor aik single Sales tax number for all categories bhi issue kia ja
sakta hai .
De-registration :( Ref. book page # 612 )
Black listing:
A person will be de-recognized on the
following basis and he will be added in black list on
the web.
No tax submit
Issue fake invoice
Voluntarily .

A person can claim only if he already paid the tax.

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 SALES TAX

Taxable Activities: ( Ref. book page # 599 )

e.g.
Bought Tissue box for
car
office use only
then it is not a taxable activity , because these are
personal nature .
Bought Tissue box for
Sale
For use in manufacturing process.
its a taxable activity.

Goods must be taxable:

Land , building , Intangible asset ,
cash and shares are not goods.

GOOGS

Taxable Goods Exempt Goods

No Tax
16% Zero Rated
( 0% )

Valid invoice of Tax: ( Ref. book page # 604 )

An invoice must not be
o Fake Invoice
o Issued by a black listed
Information given in Invoice ( Ref. book page # 599 )
o Name , address , and registration number of
supplier and recipient
o Date of issue
o Description and quantity of goods
o value exclusive of Tax
o Amount of sales Tax

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 SALES TAX

Fixed Assets :
The fixes asset must be used in the
production of taxable goods.
Exempt Goods: ( Ref. book page # 602 )
o Live animals
o Holy Quran and other holy books
o computer software
o Imported samples

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CONCEPT
About
goods purchased from unregistered suppliers
are exclusively used for making Taxable supplies"

Example : ( Assumed Figures )

Supplies Amount Common Input Tax

Taxable 1000 840
Zero rated 500 420
Exempt 1000 840
2500 2100

Adjustment :
Purchases from unregistered person Rs.500 are equally
contributed to supplies .

Solution :
We cant claim tax on these purchases. So we must
deduct it from our sales.

Supplies Amount Common Input Tax

Taxable (1000-200) 800 840
Zero rate (500-100) 400 420
Exempt (1000-200) 800 840
2000 2100

In both cases Total of common input tax will be same.

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NOTE
From sale only the Sale price of , purchases from un-
registered person will be deduct.

Question :
Purchases from unregistered person of Rs.400 whose sale
price is Rs.500. These goods were used in the Taxable supplies.
Common input Tax is Rs.2100

Supplies Amount
Taxable 2000
Zero rated 300
Exempt 200
2500
Requirement:
Apportionment of common input Tax.

Solution :
Apportionment of common input Tax

Supplies Amount Common Input Tax

Taxable (2000-500) 1500 1575
Zero rate 300 315
Exempt 200 210
2000 2100

Apportionment of Common input Tax.

Taxable supplies = 1500 X 2100 = 525

2000

300 X 2100 = 315

Zero Rated = 2000

Exempt Supplies = 200 X 2100 = 210

2000

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 SALES TAX

Note
If sale price of purchases from unregistered person is not
given.

EXAMPLE :

Purchase price of goods from unregistered person is Rs.400 and

these goods were used in the taxable supplies. Purchases from
registered person is Rs. 200. Common input tax is Rs. 2100.

Supplies Amount
Taxable 2000
Zero rated 300
Exempt 200
2500
Requirement:
Apportionment of common input Tax.

Solution :
IF purchase price not given then the following procedure
should be adopted.
I. Calculate the gross profit ratio
II. Apply the ratio on purchases (from unregistered
person) and calculate the sale price of the
purchases.
NOTE

Formulas for calculating the gross profit ratio.

S=C+SX%
OR
C=C+CX%
where ,
S = Total sales of the Company
HINT C = Total cost ( purchases ) of the company

In both steps same formula should be used .

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 SALES TAX

Step.1 : Calculation of margin on sale :

S=C+SX%
assume : % = x
where:
S = Total Supplies
C = Total purchases
2500 = 600 + 2500x
2500x = 2500 600
2500x = 1900
x = 0.76%

Step.2 : Calculation of the sale prices of the purchases (from

unregistered person).

S=C+SX%
assume : S = x
where:
S = Sale price of purchases from unregistered
person (required to calculate)
C = Purchases from unregistered person

x = 400 + 0.76x
0.24x = 400
x = 1667
So now ,
= Taxable supplies Sale price of purchases from unregistered person
= 2000 1667
= 333

Apportionment of common input Tax

Supplies Amount Common Input Tax

Taxable (2000-1667) 333 839
Zero rate 300 757
Exempt 200 504
833 2100

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!!!!!!!!!!! General format of Sales Tax Numerical !!!!!!!!!!

Computation of Tax Liability

Output Tax Rs.(000)

Supplies to registered person ( xxx X 16% ) xxxx
Supplies to un-registered person ( xxx X 16% ) xxxx
xxxx
Input Tax
Common input tax ( w-1 ) xxxx
or Lower
90% of out put Tax xxxx
(xxxx)
Tax Liability xxxx

Tax Refundable ( w-1 ) = xxxx

Note :
if the 90% of output tax is less than the common input tax
then the balance will be carry forward.
e.g.
common input tax = 1000
90% of output tax = 800
Balance c/f = 200 it would be the input tax of the next month

Working :
( W-I ) Apportionment of common input tax.

Supplies Rs.(000) Common input Tax

Rs.(000)
Taxable xxx xxx Taxable supplies X total input tax
Zero Rated xxx xxx ( refundable ) =
Total supplies
Exempt xxx xxx ( not refundable )
xxxx xxxx

( W-I ) Common input Tax or Residual Tax.

Net purchases from registered person X 16% = xxxx

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 SALES TAX

Debit and Credit Note( Ref. book page # 607 )

Example :
In June Mr. X sales goods to Mr. Y worth Rs.100,000
and receive Rs.116,000( where 16000 is sales Tax ) . But in July Mr. Y
return goods worth Rs.50000.
So Mr. X will return Rs. 58000 { 50,000 + ( 16000 X 50% ) }.

Information given:
Mr. X Mr. Y
Issue credit note (sales return) Issue Debit note ( purchase return )

Output Tax = Rs. 100,000 Output Tax = Rs. 200,000

Input Tax = Rs ( 50,000 ) Input Tax = Rs ( 80,000 )

Requirement :
Calculate Tax payable by both persons.

Solution :

Mr. X Mr. Y
Output Tax = 100,000 Output Tax = 200,000
less: credit note = (8000)
92000 Input Tax = (80000) Difference is
Less: input Tax = (50000) Debit Note = 8000 .
tax payable
Tax Payable = 42000 (72000)

Tax Payable = 128,000

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Theoretical Portion of Sales Tax

General terms :

1. Sales Tax is a multi stage tax : ( Ref. book page # 594 )

The Sales tax is a multistage
tax payable on the value of :
Taxable supplies by a registered person in respect of any
taxable activity carried on by him ;
Goods imported in Pakistan ; and
Specified taxable services
2. Who is liable to pay Sales Tax : ( Ref. book page # 595 )
Liability to pay the sales tax
to the sales tax department shall be :
of the person making the supply , in case of supply of
goods ;
of the person importing the goods , in case of goods
imported in Pakistan; and
of the person providing taxable services.
3. When to pay Sales Tax : ( Ref. book page # 595 )
Sales tax shall be paid at the time
of:
payment of custom duty in case of import of goods ;
Filing of sales tax return in case of supplies made or
services provided in Pakistan.

4. Definition of Cottage industry :

Means a manufacturer whose
annual taxable turnover during the last 12 months , ending any tax
period , does not exceeds Rs.5 million or whose annual utility
( electricity , gas, and telephone ) bills during the last 12 months ,
ending any tax period, do not exceed Rs.700,000
In Short:

I. Taxable turnover of last 12 months < Rs.5 million

II. Utility bills of last 12 months < Rs. 700,000

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Exemptions provided to small manufacturer and small retailer

Importer / wholesaler / Sales tax @ 16% on value of taxable

Distributor
Retailer
Total turnover up to Rs.5 million
during the last 12 months.
Total turnover exceeds Rs.5 million
during the last 12 months.
Manufacturer
Cottage industry
Other than Cottage industry
supplies
Exempt supplies as per 6th schedule.
Fixed sales tax as per special
procedure rule
Exempt supplies as per 6th schedule.
Sales tax @ 16% on value of taxable
supplies.

IMPORTANT DEFINITIONS:

1. Arrears: ( Ref. book page # 596 )

Means unpaid sales Tax including;
additional tax
default surcharge
fine
penalty
fee
or any other sum under the sales tax laws at
any particular day.

2. Defaulter: ( Ref. book page # 597 )

Means a person who fails to pay the arrears.
Person is a ;
proprietor
a partner in case of a firm
a director in case of a company
and also includes a guarantor or successor

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3. Distributor: ( Ref. book page # 597 )

Means a person appointed by a manufacturer,
importer , or any other person for a specified area to purchase
goods from him for further supply and includes a person who is also
engaged in supply as a wholesaler or retailer.

4. Due Date: ( Ref. book page # 597 )

In relation to the furnishing of a return means the 15th
day of the month , following the , end of the tax period or such
other date as the FBR may specify.

5. Goods: ( Ref. book page # 597 )

Includes every movable property other than actionable
claim , money, stocks and shares and securities .

6. Input Tax: ( Ref. book page # 597 )

In relation to registered person means , the tax
levied on :
supply of goods to the person
Goods imported and cleared under the custom act.
taxable services under the provincial ordinance
rendered to the person
Federal excise duty in sales tax mode on goods or
services to the person.

7. Manufacture or Produce: ( Ref. book page # 597 )

Includes :
o any process in which an article is converted into
another distinct article
o any process in which an article is so changed or
reshaped that it becomes capable of being put to
use differently
o any process incidental to the completion of a
manufactured product

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8. Manufacturer or Producer: ( Ref. book page # 598 )

Means a person who engages in the
manufacture or production of goods whether or not the raw
materials are owned by him.

9. Open market price: ( Ref. book page # 598 )

Consideration in money which that supply
or similar supply would generally fetch in an open market .

10. Output Tax : ( Ref. book page # 598 )

In relation to registered person means , the tax
levied on :
supply of goods by the person
taxable services under the provincial ordinance
rendered by the person
Federal excise duty in sales tax mode on goods or
services by the person.

11. Sales Tax: ( Ref. book page # 598 )

Means;
The tax ,
additional tax,
default surcharge,
fine ,
penalty,
fee ,
or any other sum under the sales tax laws.

12. Supply: ( Ref. book page # 598 )

Means the sale or other transfer of the right to dispose
off goods as owner, including such sale or transfer under a hire
purchase agreement , and also includes :
a. putting to private , business or non business
use of goods manufactured in the course of
taxable activity other than those of making a
taxable supply.
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 SALES TAX

b. auction or disposal of goods to satisfy debt

owed by a person
c. possession of taxable goods held immediately
before a person ceases to be a registered
person

13. Taxable Activity: ( Ref. book page # 599 )

means any economic activity whether or not
for profit , and includes ;
I. any activity in the form of business , trade or
manufacture ;
II. supply of goods or providing of services to
another person;
III. a one-off adventure or concern in the nature of
a trade ; and
IV. any thing done or undertaken during the
commencement or termination of the economic
activity

14. Tax Fraction ( Formula ): ( Ref. book page # 599 )

% of sales Tax . X Value

% of sales Tax + 100

15. Taxable Supplies : ( Ref. book page # 599 )

A supply of taxable goods by an;
importer
manufacturer
wholesaler / dealer / distributor
or retailer including zero rated supply
but excluding exempt goods.

16. Tax period: ( Ref. book page # 600 )

One month or other period as the Federal
government may specify .

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 SALES TAX

17. Time of Supply : ( Ref. book page # 600 )

Time of supply depend upon different situations :

Situations Time of Supply

Normal Time at which the goods are delivered or made
available to the recipient of the goods
Supply under hire purchase Date of agreement
agreement
Services Time at which services are provided

18. Value of supply : ( Ref. book page # 600 )

Value of taxable supplies is the consideration
in money including all federal and provincial duties which the
supplier receives in respect of the supply excluding the amount of
sales tax.

SR. no. Situation Value of supply

1 Consideration is partly or fully in kind Open market price
excluding sales tax
2 Sale is made on installment basis Open market price
where the price includes markup on excluding sales tax.
surcharge [ mark up or surcharge
included in credit sales or
sale on installment basis is
not subject to sales tax ]
3 Supply between associated persons Value as in the normal case
or open market price
excluding sales tax
whichever is higher
4 In case of imported goods Value determined under
the custom act including
custom and excise duty
levied thereon
5 If there is a reason to believe that the Value determined by the
value is under declared in the tax valuation committee
invoice comprising representative
of trade and the sales tax
department
6 Special nature of transaction and Open market price
ascertainment of value is difficult excluding sales tax
7 Exempt goods supplied to a registered Market price excluding
person for processing sales tax

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19. Tax rates: ( Ref. book page # 601 )

Sales Tax rate is 16%. however , the Federal
Government has power to fix a lower or higher rate on specified
items.
22% on various items such as jelly, plastic waste,
paper and aluminum
19.5% on various items such as certain steel items .

20. Zero Rates Supplies : ( Ref. book page # 606 )

Goods falling under this category are
chargeable to sales tax @ 0%.
Examples of items under this category :
o Supply to diplomats , diplomatic mission and
privileged persons
o supply of raw material
o supply to exporters under duty and tax
remission rules ( DTRE )
o Supplies against international tenders
Some more examples are given at book page 606.

21. Exempt Supplies: ( Ref. book page # 601 )

Certain imports and supply of goods falling
under this category are outside the scope of sales tax and there for
not subject to sales tax.
Examples of items under this category :
o Live animals
o Agriculture produce
o Holy Quran
o computer software
o imported samples

Some more examples are given at book page 601.

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22. Debit and credit Note and destruction of goods;

( Ref. book page # 607 ) Where a
registered person has issued a tax invoice and the tax return or tax
invoice needs to be modified as a result of :
o cancellation of supply ; or
o return of goods ; or
o change in the nature of supply ; or
o change in the value of supply.
With in 180 days , then the registered person may issue a debit/
credit note indicating specified information including reason for the
issuance of debit/ credit note and make adjustments accordingly.
[ Period of 180 days may be extended for any special person ]

23. Drawing of Samples : ( Ref. book page # 611)

For the purpose of determining sales tax
liability or for the purpose of establishing value of any taxable goods,
an authorized officer can take minimum quantity of goods or raw
materials against a proper receipt, a copy of which shall be kept in
record by the registered person and the commissioner.

NOTE

Important definitions are giving in the book at page no.600

THE END

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