Sales Tax, also known as Value Added Tax, is applied on most

goods and services. It is a form of indirect tax bourne by the

ultimate customer. Company making sales to a customer collects
the sales tax from the customer on behalf of the tax authorities.
The company is therefore acting as an agent of government as a
collector of sales tax.
A company itself also pays tax in respect of the purchases of goods and
services from other suppliers. However, the company would be able to
recover the tax paid on such purchases from the tax authorities. What the
company finally pays or receives is the difference between sales tax it
collected from customers (output tax) and sales tax it paid on purchases
(input tax). If the output tax exceeds the input tax, the company will pay the
difference to tax authorities. Conversely, if input tax exceeds the output tax,
then it may recover the difference from tax authorities. The settlement of sales
tax is processed by the submission of periodic tax returns by the company.

What is output tax?

Output tax is the VAT that is calculated and charged on the sale of goods and
services from your business, if you are VAT-registered. This must be calculated on
sales to other businesses and consumers alike.

Output VAT must be calculated when goods or services are withdrawn for private
use from a registered business. If goods are withdrawn for use that is not liable to
VAT under the VAT Act, VAT on withdrawals should be worked out unless the goods
in question are capital goods, which fall under the scope of adjustment provisions for
input VAT.

What is input tax?

Input VAT is the VAT that is added to the price when goods or services are
purchased that are liable to VAT. If the buyer is VAT-registered, and the costs
support a VATable activity, they can deduct the amount of VAT paid from his/her
settlement with the tax authorities.

In simple words, entities are liable to pay tax on goods sold but can
adjust or deduct the sales tax they have paid as part of purchase price
while purchasing goods. Therefore sales tax payable can be different from
actual sales tax liability.

Sales tax payable is calculated using the formula:

Sales tax = Sales tax collected on goods sold – Sales tax paid on goods
purchased

Sales tax on goods sold is also called output tax

As it is an indirect tax, the charge is shifted to next buyer by adding the

relevant tax amount in the price of goods/services sold.

Sales tax on purchased is also called input tax.

2 Calculating Sales tax

In example of Entity A above we can understand that in order to calculate
sales tax payable we need to know few things:

1. sales tax rate

2. Amount of sales to calculate output tax
3. Amount of purchases to calculate input tax

3.1 Amounts exclusive of sales tax

If amounts of sales and purchase are expressed without adding tax
amount i.e. exclusive of tax then output and input tax figures can be
calculated by simply multiplying a tax rate with sales and
purchases figure respectively.

Output tax = Sales exclusive of tax X Tax rate

Input tax = Purchases exclusive of tax X Tax rate
3.2 Amounts inclusive of sales tax
If amounts of sales and purchases are expressed with tax amounts that is
inclusive of sales tax then output and input tax figures can be determined
by multiplying a tax fraction to sales and purchases figure.

Tax fraction can be expressed as following:

Sales tax rate

(100 + sales tax rate)

In this case calculation will be:

Output tax = Sales inclusive of sales tax X Tax fraction

Input tax = Purchases inclusive of sales tax X Tax fraction

3.3 Calculating sales tax payable and sales tax refund

Once output tax and input tax amounts are determined we can compare
the figures if we have sales tax payable or sales tax refundable. If output
tax is greater than input tax then we have the difference as payable. If
output tax is lesser than input tax then we have the difference as refund.
Refund can be awarded in cash or as a credit towards future tax liability.

output tax > input tax = payable

output tax < input tax = refund

Example: Calculating sales tax payable/refund

Latok Plc has made exclusive of tax sales amounting to 1,000,000.
During the period purchases were 880,000 inclusive of tax. Sales tax rate
for the period is 10%

Calculate sales tax payable/refundable

Solution:
 Output tax = 1,000,000 x 0.1 = 100,000 [tax rate is applied as figure is
tax exclusive]
Input tax = 880,000 x 10/110 = 80,000 [tax fraction is applied as figure
is tax inclusive]

As output tax > input tax therefore difference is payable.

Sales tax payable = 100,000 – 80,000 = 20,000

What Is Corporate Tax?

A corporate tax is a tax on the profits of a corporation. The taxes are
paid on a company's taxable income, which includes revenue minus cost
of goods sold (COGS), general and administrative (G&A) expenses,
selling and marketing, research and development, depreciation, and
other operating costs.

Corporate tax or corporation tax is a tax collected from the companies on their
net income obtained from their business activity. The revenues that are
generated from the corporation tax are the main source of income for the
government of Pakistan.

Corporate tax rate

The corporate tax rate depends on the type of company. The corporate tax
rate for the year 2019-20 is as follows:

 Banking companies have a corporate tax rate of 35 %

 Public companies ( other than banking companies) has a corporate tax
rate of 29%
 Other companies have a corporate tax rate of 29 %
 Small companies have a corporate tax rate of 23 %

Company rate
 In the year 2021 to 2023, the corporate tax rate will be 29%

Small company rate

 In the year 2021, the corporate tax rate will be 22%
 In the year 2022, the corporate tax rate will be 21%
 In the year 2023, the corporate tax rate will be 20%
 Pakistan can generate a handsome amount of revenue through
corporate taxes. But unfortunately, these corporate organizations do not
pay taxes as per their taxable liabilities.

 The main reason behind the tax evasion is the high rate of
corporation tax in Pakistan. In December 2015, the corporation tax
rate of Pakistan rate was the third-highest in the world.

 Currently, Pakistan has a corporate tax rate of 29%. This rate is quite
high in comparison with other Asian countries. Thailand has a corporate
tax rate of 20%, Bangladesh and Indonesia have a tax rate of 25% and
Malaysia has a corporate tax rate of 24 %.

What Is Tax Haven?

A tax haven is generally an offshore country that offers foreign
individuals and businesses little or no tax liability in a politically and
economically static environment.

 Investors and businesses may be able to lower their taxes by

taking advantage of tax-advantaged opportunities offered by tax
havens, however, entities should ensure they are compliant with all
relevant tax laws.
https://www.investopedia.com/terms/t/taxhaven.asp