Group Members:

Basit Ali (326)

Faizan Khalid(348)
Adnan siddique(374)

Class:
M.com (4) Weekend

Subject :
Bussiness Taxation

Topic of Project:
Sales Tax, its scope and computation

Submitted to:
Prof.Ghulam Asghar

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`Topic
Sales Tax, its scope and computation

When a consumer purchases a product or service at a retail outlet, sales tax is an amount of
money determined as a percentage that is added to the cost of the item. Every time a
consumer makes a transaction, they are charged the state and local tax rate.

A sales tax is a government-imposed consumption tax on the selling of goods and services. A
traditional sales tax is imposed at the moment of sale, collected by the shop, and then
forwarded to the government. In a given jurisdiction, a company is responsible for sales taxes.

Understanding Sales Tax

A Retail sales taxes are only applied to the end consumer of a product or service. Because most
items in modern economies transit through several stages of manufacturing, many of which are
handled by multiple businesses, a large quantity of evidence is required to establish who is
ultimately accountable for sales tax.

Sales tax in Pakistan

The standard sales tax rate in Pakistan is 17%. Exporters and certain providers of
financial services may apply for a Sales Tax suspension. Imports of some basic
foodstuffs and agricultural supplies are exempt from import Sales Tax

sale tax calculated

The formula for calculating the sales tax on a good or service is: selling price x sales tax rate,
and when calculating the total cost of a purchase, the formula is: total sale amount = selling
price + sales tax

Sales taxes are one major type of taxes that generate the revenue for the state
exchequer. Businesses that deal with supplying or importing goods or providing services are
liable to pay sales taxes.

Sales taxes are a form of consumption tax levied on retail sales of goods and services.

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 Scope
Sales tax is the amount that is paid to a governing body for the sales of certain goods and
services. It is actually the additional amount of money that a person pays based on the
percentage of a selling price of the services or goods that are purchased.

According to the ACT 1999, Subject to the provisions of this Act, there shall be charged, levied,
and paid a tax known as sales tax at the rate of fifteen per cent of the value of,

i. Taxable supplies made by a registered person in the course or furtherance of any taxable
activity carried on by him
ii. Goods imported into Pakistan
Sales tax has a lot of scope in many industries. For example, in construction industry, it has
been decided that for any activity to be considered taxable under the Sindh Sales of Services
Tax Act, 2011, it must fulfil two conditions:

1) Firstly, it should be regarded as a service directly in relation to the construction of

immoveable property as such and second, it cannot, more naturally and properly, be
regarded as coming within the scope of some other tariff headings.
2) Secondly, in order to decide whether a particular business falls within the scope of
services, the “dominant intention” test is to be applied. This will determine the question

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 whether the dominant factor or essence of the transaction is the sale of material or
services.
3) Thirdly, the legal nature of any contract with the person agreeing to buy the plot would
be considered as an agreement to sell under the Transfer of Property Act, 1882 and
hence he/she cannot be said to be providing services within the meaning of the Sindh
Sales Tax on Services Act, 2011.

Following is explained the scope of SALES TAX in Pakistan in nutshell.

Normal rate of sales tax

Sales tax is 17% is charged, levied, and paid on the value of:

Taxable supplies made by a registered person in the course or furtherance of any taxable
activity carried on by him; and

Goods imported into Pakistan

Where the taxable supplies are made to a person who has not obtained registration number,
there shall be charged, levied and paid a further tax at the rate of 2% of the value in addition to
the normal rate of 17%.

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However Federal Government may, by notification in the official Gazette specify the taxable
supplies in respect of which the further tax shall not be charged, levied, and paid.

dated 9th July 2013 provides following list of persons on which this further tax at 1% is not
charged, levied, or paid on the taxable supplies of:

Electricity energy supplied to domestic and agricultural consumers.

Natural gas supplied to domestic consumers.

Motor oil, diesel oil, jet fuel, kerosene oil and fuel oil.

Goods sold by the retailers to end customers.

Supply of goods directly to end customers including food, beverages, fertilizers, and vehicles.

Items listed in Third Schedule to the Sales Tax Act, 1990.

Tax on taxable supplies specified in third schedule.

Sales Tax at 17 % will be charged on the retail price on the goods specified in Third Schedule.

The manufacturer shall legibly, prominently, and indelibly print or emboss retail price along
with the amount of sales tax on the packet, container, package, cover or label etc.

Federal Government may exclude from or include into said schedule any taxable supply by
notification in the official Gazette.

Special rates of tax

The Federal Government is empowered to prescribe any higher or lower rate of tax in respect
of any class of taxable goods.

Extra tax

Federal Government is empowered to levy and collect tax at such extra rate or amount not
exceeding 17% in addition to the amount of sales tax or retail tax, levied under Sales Tax Act,
1990. This tax shall be levied on the value of such goods or class of goods, on such persons or
class of persons, in such mode, manner and at time and subject to such conditions & limitations
as may be prescribed.

Capacity tax

Moreover, the Board may levy and collect tax on the following instead of levying and collecting
tax on taxable supplies:

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production capacity of plants, machinery, undertaking, establishments, or installations
producing or manufacturing such goods; or

fixed basis, as it may deem fit, from any person who is in a position to collect such tax due to
the nature of the business.

Tax on supply to CNG stations

In case of supply of natural gas to CNG stations, the Gas Transmission and Distribution
Company shall charge sales tax from the CNG stations at the rate of 17% on the value of supply
to the CNG consumers.

Value for the purpose of levy of sales tax shall include price of natural gas, charges, rents,
commissions and all local, provincial, and Federal duties and taxes but excluding the amount of
sales tax

Special Powers to the Federal Government

The Federal Government or the Board is authorized to levy, in lieu of Sales Tax under section
3(1), by notification in the Official Gazette such amount of tax as it may deem fit on any supplies
or class of supplies or any goods or class of goods. They are also authorized to specify the
mode, manner, or time of payment of such tax.

Computationon Sales Tax: Formula To Use With an Example

Sales tax has an important role in many business transactions. Consumers pay a sales tax when
they purchase a product but it's up to the business to give this money to the government.
Therefore, it's important for both businesses and consumers to know the sales tax formula and
how sales tax works. In this guide, we discuss what sales tax is and how you can calculate it for
yourself.

What is the sales tax formula?

The sales tax formula is used to determine how much businesses need to charge customers
based on taxes in their area. State and local governments across the United States use a sales
tax to pay for things like roads, healthcare and other government services. Sales tax applies to
most consumer product purchases and exists in most states.

The sales tax formula is simply the sales tax percentage multiplied by the price of the item. It's
important for businesses to know how to use the sales tax formula so that they can charge their
customers the proper amount to cover the tax. For consumers, it's good to know how the sales
tax formula works so that you can properly budget for your purchases.

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How to use the sales tax formula

There are three steps you can follow to use the sales tax formula:

1. Add up all sales taxes.

2. Multiply by the sale price.

3. Add the sales tax to the sale price.

1. Add up all the sales taxes

To use this formula, you first need to add up all applicable sales taxes. Start by determining
what the sales tax rate is in your state. Then look to see if your county or city applies any
additional sales taxes. If so, you want to add all of these numbers together. For example, New
York State has a sales tax rate of 4% and New York City has a sales tax rate of 4.5%. If you are
buying or selling a product within New York City, the sales tax rate is 8.5% combined.

2. Multiply by the sale price

Once you have the combined tax rate, you want to multiply this by the cost of the product. If
the purchase comes to $100, the sales tax in New York City would be $8.50 (100 x 0.0850). This
is the amount that the government will collect in taxes on that purchase.

3. Add the sales tax to the sale price

Consumers are the ones who pay this tax, not the business. You must, therefore, add the sales
tax amount to the sales price. A customer buying a 100 product in New York City would now
have to pay $108.50 with the inclusion of the sales tax.

When to collect sales tax

Sales tax is collected at the time of the transaction. Sales tax is a consumer tax, so businesses
need to charge the sales tax amount at the time of purchase. Businesses will then take this
sales tax amount and send it directly to the right government agency (depending on whether it
is a state, county or city tax).

 States without sales tax

 Sales tax holidays

 Exempt products

 Resale products

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States without sales tax

Most states within the United States charge a sales tax. However, there are a few exceptions.
For instance, Alaska, Delaware, Montana, New Hampshire and Oregon all do not charge a sales
tax. Also, state laws can change at any time, so it's possible that your state either no longer
charges a sales tax or has implemented one. The best thing to do is to examine the current
state sales tax rate in your area and to stay up to date on any changes.

Sales tax holidays

Some states charge a sales tax, but also have sales tax holidays. Sales tax holidays are specific
days throughout the year when businesses do not need to charge a sales tax. For example,
toward the end of spring, Florida has a sales tax holiday for several days that exempts products
used for emergencies. As this is right before the worst weather season for Florida, residents can
prepare for natural disasters, like hurricanes, by purchasing items, such as generators, without
paying a sales tax.

Exempt products

Some states exempt certain items from their sales tax. It's important for businesses to know
which of their items are subject to sales taxes and which ones are not, especially if you sell
different kinds of things. For example, New Jersey does not charge a sales tax on any clothing. If
your New Jersey business sells both t-shirts and toys, you should charge a sales tax on the toys
and not the shirts. Businesses should learn what products are exempt from the sales tax in their
area and regularly check for changes.

Resale products

If your business consists of mostly selling products to others who will then resell them, you may
not need to pay sales tax. In this instance, it is the seller who pays the sales tax by charging
their consumers. Sales tax is a tax on consumers, so if you are not selling your products to
someone who will use it, then you likely don't need to pay the tax.

Example

Here is an example to help illustrate some different uses of the sales tax rate:

Maggie's General Store provides an assortment of supplies in Florida. The sales tax rate for the
state is 6% and the county they are in charges an additional 0.5%. Near the end of May, a
customer buys food, socks, an emergency first aid kit and batteries. The total cost of each item
is:

 Food: $60

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 Socks: $12
 First aid kit: $20
 Batteries: $8
 Total: $100

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