BUSINESS TAXATION; MGT: 538

Sales Tax Act, 1990

Definitions

Board

‘Board’ means the Federal Board of Revenue (FBR) established under Federal Board of
Revenue Act, 2007.

It is the highest tax collecting authority in Pakistan. It regulates all federal taxes such as
direct taxes (e.g. income tax) and indirect taxes (e.g. sales tax, custom duty).

Board is appointed by the Federal Government.

Distributor

Distributor means a person appointed by the manufacturer, importer or any other

person for a specified area to purchase goods from him for further supply. Such person
shall be treated as distributor even if he is also engaged in supply of goods as a
wholesaler or a retailer.

Document

The term document may be defined as a medium for the storage of data and includes
any:

1. Electronic data
2. Computer program
3. Computer tapes
4. Computer disks
5. Micro films, or
6. Any other medium for the storage of such data

Due Date

In relation to the furnishing of a sales tax return, ‘due date’ means the 15 th day of the
month next following the end of the ‘tax period’. The Board may specify any other date
as due date.

Tax Period

‘Tax period’ is a period of one month. The Federal Government may notify some other
period as tax period.

Exempt Supply
It means a supply, which is exempted from the levy of the Sales Tax by the Federal
Government by giving a notification in the Official Gazette.

Written by: Ms Hafiza Noshaba Nisar

 BUSINESS TAXATION; MGT: 538

Goods

‘Goods’ means every kind of movable property excluding the following:

 Actionable claims
 Money
 Stocks
 Shares and
 Securities

Input Tax

In relation to a registered person, the ‘input tax’ means

1. The tax levied under Sales Tax Act, 1990 on the supply of goods to the person
2. The tax levied under Sales Tax Act, 1990 on import of goods by the person
3. In relation to goods or service acquired by the person, excise duty levied under
Federal Excise Act, 2005, in sale tax mode on the manufacture or production of
goods, or rendering or providing of services
4. The Provincial Sales Tax levied on services rendered or provided to the person,
and
5. The tax levied under Sales Tax Act, 1990 of Pakistan as adapted in the State of
Azad Jammu and Kashmir on the supply of goods received by that person.

KIBOR

‘KIBOR’ means Karachi Inter-Bank Offered Rate prevalent on the first day of each
quarter of the financial year.

Output Tax

In relation to a registered person ‘output tax’ means the following taxes and duties
payable by that person:

1. Tax levied under the Sales Tax Act, 1990 on supply of goods made by that
person.
2. Excise duty levied under the Federal Excise Act, 2005 in sales tax mode on
manufacture or production of goods or the rendering or providing of the services
by the persons; and
3. The Provincial Sales Tax levied on services rendered or provided by the person.

Provincial Sales Tax

Written by: Ms Hafiza Noshaba Nisar

 BUSINESS TAXATION; MGT: 538

It means the tax levied under the provincial laws or laws relating to Islamabad Capital
Territory, which are declared by the Federal Government, by a notification, to be
provincial sales tax for the purpose of input tax.

Registered Person

It means a person who is registered or is liable to be registered under the Sales Tax
Act, 1990. It is to be noted that a person who is liable to be registered but has not been
registered shall not be entitled to any benefit available to a registered person under the
law (e.g. credit or refund of input tax)

Retail Price

It means a price fixed by the manufacturer, inclusive of all duties, charges and taxes
(other than sales tax) at which any particular brand or variety of any article (mentioned
in Third Schedule) should be sold to the general consumer.

Where more than one such price is fixed for the same brand or variety, the highest of
such prices shall be taken as retail price

The law requires that the retail price and the amount of sales tax shall be printed on
each article, packet, container or package of the goods.

Retailer

Retailer means a person supplying goods to general public for the purpose of
consumption. Any person who combines the business of import, manufacturing or
production with retail shall have to observe the following conditions:

1. He shall notify and advertise wholesale prices and retail prices separately, and
2. He shall declare the addresses of his retail out lets

Supply Chain

It means the series of transactions between buyers and sellers from the stage of first
purchase or import to the stage of final supply.

Tax Invoice

It means a document required to be issued under Sales Tax Act, 1990. According to this
Act every registered person while, making a taxable supply, shall issue tax invoice. The
invoices shall contain the following particulars:

1. Serial Number
2. Name, address and registration number of the supplier
3. Name, address and registration number of the recipient

Written by: Ms Hafiza Noshaba Nisar

 BUSINESS TAXATION; MGT: 538

4. Date of issue of the invoice

5. Description and quantity of goods
6. Value before sales tax
7. Amount of sales tax; and
8. Value inclusive of sales tax

Only one tax invoice shall be issued for a taxable supply. Upon loss of original tax
invoice a copy clearly marked as ‘COPY ONLY’ can be issued.

Time of Supply

Time of supply is defined separately for supply of goods and rendering of services.

For Supply of Goods

For supply of goods (other than under hire purchase agreement) means the time which
is earlier of the following:

1. The time at which the goods are delivered or made available to the recipient; or
2. The time when any payment is received by the supplier in respect of that supply

For Supply under Hire Purchase Agreement

Where goods are supplied under hire purchase agreement, time of supply means the
time at which agreement is entered into.

Rendering of Services

‘Time of supply’ in relation to services, means the time at which the services are
rendered or provided.

Receipt of Part Payment

Where any part payment is received for a supply in a tax period, it shall be accounted
for in the return for that tax period in which it is received.

Wholesaler

It includes a dealer and means any person carries on the business of buying and selling
goods by wholesale. This term also include the following persons:

1. A person who sells as an agent such goods which belong to others; and
2. A person supplying good to a person who deducts income tax at source under
the Income Tax Ordinance, 2001.

Written by: Ms Hafiza Noshaba Nisar

 BUSINESS TAXATION; MGT: 538

Levy of Sales Tax

Tax on Supplies to Non-Registered Persons

The Federal Government may notify the goods which cannot be supplied to non-
registered persons. And if someone supplies these goods will never be entitled to claim
the input tax paid on purchases of such goods.

Besides the above provision, a person making taxable supplies to non-registered

persons shall charge and pay a further tax @ 2% of the value of goods supplied. This
tax shall be charged in addition to some taxes notified by the Sales Tax Act, 1990.

Written by: Ms Hafiza Noshaba Nisar

BUSINESS TAXATION; MGT: 538

Written by: Ms Hafiza Noshaba Nisar

 BUSINESS TAXATION; MGT: 538

Charging Tax at 0%

Zero Rated Supply

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 BUSINESS TAXATION; MGT: 538

It means a supply which is charged to tax at the rate of 0% under the Sales Tax Act,
1990.

According to the Sales Tax Act, 1990 the following goods are treated as zero rated
supplies:

1. Goods exported out of Pakistan

2. Goods notified by Federal Government as Zero rated
3. Such other goods as may be specified by the Board or the Sales Tax Act, 1990

The following goods shall not be treated as zero rated supply:

1. The goods which are exported but have been or intended to be re-imported in
Pakistan
2. The goods which have been entered for export but are not exported and
3. The goods, which have been exported to a country, specified by the Federal
Government

Apportionment of Input Tax

The Sales Tax Rules, 2006 define some rules for such registered persons who make
taxable and exempt supplies simultaneously which are as follows:

1. Input tax paid on raw materials relating wholly to the taxable supplies shall be
admissible
2. Input tax paid on raw materials wholly to the exempt supplies shall NOT be
admissible
3. Input tax incurred for making both exempt and taxable supplies shall be
apportioned and only the portion related to taxable supplies will be admissible.
This portion will be calculated as follows:

Residual Input Tax x Value of Taxable Supplies

Value of Taxable + Exempt Supplies

OR

Residual Input Tax x Value of Taxable Supplies

Value of Total Supplies

Residual Input Tax

Where Residual Input Tax is the value of Input tax paid on raw material, components
and capital goods being used for taxable as well as exempt supplies. However, the
input tax on those materials, etc. used wholly for taxable or wholly for exempt supplies
is not included in Residual Input Tax.

Written by: Ms Hafiza Noshaba Nisar

BUSINESS TAXATION; MGT: 538

Written by: Ms Hafiza Noshaba Nisar

BUSINESS TAXATION; MGT: 538

Written by: Ms Hafiza Noshaba Nisar