THE SALES TAX ACT, 1990 Concepts and Application of

Sales Tax Laws

Presented By: Hafiz Muhammad Yasir Chughtai

 CONCEPTS AND APPLICATION OF SALES
TAX LAWS
1. Applicable sales tax laws
2. Overview of sales tax
system
2.2 Sales tax rates including
further tax and who is liable to
pay sales tax
2.3 When to pay sales tax
2.4 Example of basic VAT
including the concept of cottage
industry
2.5 Example of VAT where a
person in a supply chain may be
unregistered
2.6 Zero rated supplies
2.7 Exempt supplies
2.8 Third Schedule
2.9 Adjustment of input tax
including extra tax
2.10 Payment through banking
channel
2.11 Apportionment of input tax
2.12 Debit and credit note and
destruction of goods
2.13 Restriction on input tax
3.
2.14 Supply to unregistered
person 4.
2.15 Purchase of stock before
registration 5.
2.16 Concept of value addition 6.
2.17 Commercial imports
2.18 Retailers
2.19 Excess tax collection
2.20 Joint and several liability
of registered person in supply
chain where tax unpaid
2.21 Supply of parts free of
cost under warranty
2.22 Tax invoice
Utilities
Withholding sales tax
Sale of taxable activity
Active Taxpayers’ List (ATL)
CONTEMPORARY TAXATION
1. APPLICABLE LAWS RELATED TO
SALES TAX
Sales Tax Laws related to sales tax collection, payment and allied matters applicable
in Pakistan are as under:
 Sales Tax Act, 1990
 Sales Tax Rules, 2006
 Provincial Sales Tax Laws related to sales tax on services.

CONTEMPORARY TAXATION
2. BASIC CONCEPTS INCLUDING VAT
2.1 Overview of Sales Tax System
Sales tax is a Value Added Tax (VAT) system. It is an indirect tax collectable from the whole supply chain
i.e. importers, manufacturers, wholesalers (including dealers and distributors) and retailers with certain
exceptions.
Therefore, sales tax is payable on the value of:
- Taxable supplies by a registered person in respect of any taxable activity carried on by him;
- Goods imported into Pakistan; and
- Specified taxable services

VAT is a percentage tax levied on the price each registered person charges for goods
supplied or taxable services rendered by him.
VAT normally utilizes a system of tax credit (called input tax adjustment) to place the ultimate
and real burden of tax on the final consumer.

CONTEMPORARY TAXATION
 2.2 SALES TAX RATES AND WHO IS LIABLE TO PAY
SALES TAX
Tax Rates :
(a) Sales tax rate is 17%. Further tax @ 3% shall also be charged when the goods
are supplied to unregistered persons.
It means that sales tax rate is 17% + 3% on supplies of goods to unregistered
persons.
However, further tax shall not be charged in the following cases: (SRO 648(I)/2013)
- Supplies to Government, semi-government and statutory regulatory bodies
- Supply of goods directly to end consumers including supplies by a retailer
- HSD, PMG, and other controlled/Regulated Petroleum Products
- ………………………. etc.

Further tax shall not become part of output tax which means that further tax is payable to
the FBR as a bottom line figure.

CONTEMPORARY TAXATION
 2.2 SALES TAX RATES AND WHO IS LIABLE TO PAY
SALES TAX
Tax Rates : Example:
Sales through factory’s outlets to end users involves further tax?
 Yes
 No

Sales to employees, educational institutions, hospitals, government departments is subject to

further tax ?
 Yes
 No

CONTEMPORARY TAXATION
Assignment ?

Exemption of Further sales tax as per SRO 648(I)/2013?

CONTEMPORARY TAXATION
 2.2 SALES TAX RATES AND WHO IS LIABLE TO PAY
SALES TAX
Tax Rates :
(b) The FBR has power to fix a lower or higher rate on specified items.
 Higher sales tax rate
Example of higher rate of sales tax is petroleum products through notifications issued by the FBR from
time to time.
 Lower sales tax rate
8th Schedule specifies import or supply of certain goods on which sales tax is chargeable at reduced
rates subject to certain conditions. Few examples are:
- 2% on fertilzers
- 10% on flavoured milk, fat filled milk, cheese, butter etc if sold in retail packing under a brand name
- 1% on silver and gold in unworked condition
- Articles of jewellery; 1.5% of value of gold + 0.5% of value of diamond + 3% of making charges. No input tax allowed
except input tax paid on gold.

CONTEMPORARY TAXATION
 2.2 SALES TAX RATES AND WHO IS LIABLE TO PAY
SALES TAX
Tax Rates :
(c) The FBR has authority to levy and collect sales tax
I. on fixed basis or
II. on the basis of capacity of plant in lieu of sales tax on the basis of value of supply of goods.
Example of fixed tax
Fixed tax on monthly basis on bricks - Section 3(1B) and 10th Schedule
 Fixed tax on bricks has been levied on monthly basis irrespective of actual production or actual value of supply as under:
- Rs.7,500 per month in Sindh, KPK, Baluchistan and specified areas of Punjab such as Mianwali, Multan etc.
- Rs.10,000 per month in specified area of Punjab such as Jhelum, Sargodha, Sialkot etc.
- Rs.12,500 per month in Lahore, Islamabad and Rawalpindi.

Fixed tax on mobile phones etc. – section 3(3B) and 9th Schedule
9th Schedule specifies import or supply of SIM card and phones on which sales tax is charged on fixed basis as under:
- On activation of SIM card by a Cellular Mobile Operator (CMO) @ Rs.250 per SIM card;
- On mobile phones and satellite phones ranging from Rs.10 to Rs.9,270 as given in Table II of 9th Schedule. CONTEMPORARY TAXATION
 2.2 SALES TAX RATES AND WHO IS LIABLE TO PAY
SALES TAX
Who is liable to pay sales tax :
Liability to pay the sales tax to the sales tax department shall be of the person:
a. Making the supply, in the case of supply of goods [It means that the purchaser, who pays sales tax,
does not pay sales tax to FBR instead he pays sales tax to the supplier and the supplier pays sales tax
to FBR after making his input tax adjustment];
b. Importing the goods, in the case of goods imported into Pakistan; and
c. Providing taxable services.

However, the FBR may specify the goods in respect of which liability to pay sales tax to FBR
shall be of the person receiving the supply.
Example is sales tax withholding provisions where sales tax or a portion thereof is payable to the FBR by the
recipient of goods.

CONTEMPORARY TAXATION
2.3 WHEN TO PAY SALES TAX
Sales tax shall be paid at the time of:
- payment of custom duty in the case of import of goods; and
- filing of sales tax returns in the case of supplies or services in
Pakistan e.g. 15th of every preceding month.

CONTEMPORARY TAXATION
 2.4 EXAMPLE NO.1 TO EXPLAIN BASIC CONCEPT OF SALES TAX:
In this example, every person in the supply chain is a registered person for sales tax purpose and subject to sales
tax @ 17% (restriction on input tax and special provisions for commercial importers and retailers are not
considered for this example):
Sr. No Transactions Input Output Tax (Rs) Pay to FBR
Tax (Rs) (Rs)

1. Importer’s import value Rs.9,200 1564

Importer sells to a wholesaler of raw materials 1,564 1870 306

for Rs.11,000 + 1,870 sales tax
= margin is Rs.1,800
2. Wholesaler of raw materials buys at Rs.11,000 + 1870 1972 102
1,870 input tax and
sells to a manufacturer for Rs.11,600 + 1,972
sales tax
= margin is Rs.600
CONTEMPORARY TAXATION
 2.4 EXAMPLE NO.1 TO EXPLAIN BASIC CONCEPT OF SALES TAX:
In this example, every person in the supply chain is a registered person for sales tax purpose and subject to sales
tax @ 17%
Sr. No Transactions Input Output Tax Pay to FBR
Tax
3. Manufacturer buys at Rs.11,600 + 1,972 input tax (his 1972 4012 2040
other manufacturing expenses are Rs.9,000) and sells to
a wholesaler of finished product at Rs.23,600 + 4,012
sales tax
= margin is Rs.3,000
4. Wholesaler of finished product buys at Rs.23,600 + 4012 4080 68
4,012 input tax and sells to a retailer at Rs.24,000 +
4,080 sales tax
= margin is Rs.400
5. Retailer buys at Rs.24,000 + 4,080 input tax and sells to 4080 4182 102
consumer at Rs.24,600 + 4,182 sales tax
= margin is Rs.600
CONTEMPORARY TAXATION
2.5 EXAMPLE NO.2 TO EXPLAIN WHERE
MANUFACTURER AND RETAILER MAY BE
UNREGISTERED:
Assumption in this example is that the seller can change sale price to maintain his
margin as in example no.1.
Sales tax rate is 17% in normal case.
3% shall also be charged where the supplies are made to an unregistered person
with few exceptions.
Withholding tax rules are not considered in this example [discussed later].

CONTEMPORARY TAXATION
 2.5 EXAMPLE NO.2 TO EXPLAIN WHERE MANUFACTURER
AND RETAILER MAY BE UNREGISTERED:
Sr. No Transactions Input Output Tax Pay to FBR
Tax (Rs) (Rs) (Rs)

1. Importer’s import value Rs.9,200 1840

Margin is Rs.1,800
A commercial importer is required to pay 17% normal sales
tax plus 3% of import value and no refund can be claimed
by him of this amount.

Importer sells to a wholesaler of raw materials for 1840 1870 30

Rs.11,000 + 1,870 sales tax @ 17%
2. Wholesaler of raw materials buys at Rs.11,000 + 1,870 1870 1972 102
input tax and sells to an unregistered manufacturer for
Rs.11,600 + 1,972 sales tax @ 17% + 348 further tax @
3%
Further tax payable 348
= margin is Rs.600
CONTEMPORARY TAXATION
 2.5 EXAMPLE NO.2 TO EXPLAIN WHERE MANUFACTURER
AND RETAILER MAY BE UNREGISTERED:
Sr. No Transactions Input Output Tax (Rs) Pay to FBR
Tax (Rs) (Rs)
3. Manufacturer buys at Rs.13,920 (his other Nill Nill Nill
manufacturing expenses are Rs.9,000) and sells
to a wholesaler of finished product at Rs.25,920
= margin is Rs.3,000
4. Wholesaler of finished product buys at Rs.25,920 Nill 4474 4474
and sells to an unregistered retailer at Rs.26,320
+ 4,474 sales tax @ 17% + 790 further tax @
3% 790
Further tax payable
= margin is Rs.400
5. Retailer buys at Rs.31,584 and sells to consumer Nill Nill Nill
at Rs.32,184
= margin is Rs.600
CONTEMPORARY TAXATION
 2.6 ZERO RATED SUPPLIES – SECTION 4, 5TH
SCHEDULE
a) Goods falling under this category are chargeable to sales tax at 0%. It means that their output tax is 0% however, their
corresponding purchases may not necessarily zero rated and therefore, input tax would be suffered which is reclaimable as
input tax.

Export of goods falls under this category other than the following:
 Export of specified goods to any country as notified by the Federal Government.
 Export intended to be re-imported into Pakistan.

Examples of other items under this category:

 Supply to diplomats, diplomatic missions and privileged persons
 Supply of raw materials and components for further manufacture of goods in Export Processing Zone (EPZ)
 Supply of locally produced plant, machinery and equipment in EPZ subject to certain conditions

b) Refund of input tax on zero rated supply – section 10

(i) Refund of input tax on zero rated supplies shall be made within 45 days of filing of return. CONTEMPORARY TAXATION
2.7 EXEMPT SUPPLIES:
SECTION 13, 6 TH SCHEDULE

a) Specified imports and supplies of goods falling under this category are outside
the scope of sales tax and therefore not subject to sales tax.
b) An example is publication of books, journals and newspapers where paper
purchases suffer sales tax but their supply does not and in this case input tax
cannot be reclaimed.
Other important exempt items are:
 Live animals.
 Agricultural produce not subject to any further manufacture.
 Imported samples [local samples of taxable goods are subject to sales tax].
 Goods imported by diplomats, diplomatic missions or privileged persons.
 Personal baggage imported by overseas Pakistanis. etc

CONTEMPORARY TAXATION
 DIFFERENCE BETWEEN ZERO RATED SUPPLIES AND
EXEMPT SUPPLIES:
Zero Rate Supply Exempt Supply
Definition “Zero rated supply” means a taxable “Exempt supply” means a supply which is not
supply which is chargeable to sales chargeable to sales tax.
tax at 0%.
Goods Goods exported or goods listed in Goods specified by FBR through notifications
5th Schedule and goods listed in 6th Schedule
Invoice Tax invoice shall be raised but sales No sales tax invoice is required
tax shall be charged at 0%
Input tax credit Input tax on zero rated supplies is Input tax on exempt supplies is not adjustable
refundable from FBR nor refundable
Registration Sales tax registration is required Sales tax registration is not required where a
where a person wants to claim refund person is engaged exclusively in exempt
supplies.
CONTEMPORARY TAXATION
 EXAMPLE
BAF & Co. deals in the taxable and exempted supplies. BAF provided
following information for determination of its sales tax liability for the month
of June, 2021.
1. BAF made purchases amounting Rs. 800,000 from Elahi & Sons who is registered Person.
2. Mr. Ahsan invoiced Rs. 150,000 to BAF without charging any sales tax.
3. BAF further incurred manufacturing and other cost amounting Rs. 150,000.
4. Out of total stock, BAF supplied goods of worth Rs. 1,500,000 to Sidra & Co., which is a registered
company under the Sales Tax Act, 1990.
5. In addition to above BAF made exempted supplies of Rs. 600,000 and supplied goods of worth Rs.
500,000 to non-registered person.
6. BAF also paid sales tax on electricity bill amounting Rs. 18,000.
Required:
Compute sales tax liability of BAF under the Sales Tax Act, 1990 for the month of June, 2021.

CONTEMPORARY TAXATION
SOLUTION
Output Working
Sr. Description Value of Supplies Output Further Tax
No.
4. supplied goods of worth Rs. 1,500,000 to Sidra & Co. 1,500,000 255,000
5. BAF made exempted supplies of Rs. 600,000 600,000 -
6. Supplied goods of worth Rs. 500,000 to non-registered person 500,000 85,000 15,000

Total 2,600,000 340,000 15,000

Input Working
Sr. No. Description Value of Purchases Input
1. Cost Rs. 800,000 x 17% 800,000 136,000
2. Invoice from Mr. Ahsan Rs. 150,000 without Sales tax 150,000 -
3. BAF’s manufacturing and other cost Rs. 150,000 150,000 -
7. Paid sales tax on electricity bill amounting Rs. 18,000 18000
Total 154,000 CONTEMPORARY TAXATION
SOLUTION (CONTINUE…)
Sales Tax input allowed : Total input tax x Taxable Supplies / Total Supplies

Input allowed = 154,000 x 2,000,000/2,600,000

= 118,462

Sales tax Liability for the month of june 2021 = STO – STI
= 340,000 – 118,462
= 221,538
Add FT = 15,000
STL = 236,538

CONTEMPORARY TAXATION
 THIRD SCHEDULE – SECTION 3(2)(A)
Sales tax is charged by a manufacturer on his supply or paid by an importer at the time of import
@ 17% (or at a reduced rate as specified in 8th Schedule) in respect of goods falling under this
category on the recommended retail price which shall be legibly printed on the label etc along with
the amount of sales tax. After charging / paying such sales tax, the same amount of sales tax will
be charged on subsequent supply.
Items covered under this category are:
 Cigarettes
 Juices, ice cream, syrups, aerated water and beverages
 Mineral / bottled water
 Detergents, Shampoo, soap, toothpaste, shaving cream, cosmetics, shoe polish / cream
 Tea, powder drinks, milky drinks
 Toilet paper and tissue paper
 Spices sold in retail packing with brand name and trade mark
 Cement sold in retail packing

CONTEMPORARY TAXATION
 THIRD SCHEDULE – SECTION 3(2)(A)
 Fertilizers
 Household electrical goods, including air conditioners, refrigerators, deep freezers, TV, recorders and players, bulbs,
tube-lights, electric fans and irons, washing machines and telephone sets.
 Household gas appliances, including cooking range, ovens, geysers and gas heaters.
 Foam products including spring mattresses for household use.
 Paints, distempers, enamels etc. sold in retail packing
 Lubricating oils, brake fluids etc. sold in retail packing
 Auto-parts in retail packing, storage batteries, tyres and tubes excluding those sold to automotive manufacturers or
assemblers
 Motorcycles and Auto rickshaws
 Biscuits in retail packing with brand name
 Tiles

Note
Further tax is not applicable on 3rd Schedule items.
CONTEMPORARY TAXATION
 ADJUSTMENT OF INPUT TAX
a) A registered person is entitled to deduct his input tax during the tax period for the purpose of taxable supplies
made or to be made (e.g. stocks not yet sold) from his output tax liability and for this purpose he must hold:
i. Tax invoice in his name bearing his NTN or in case of supply of electricity or gas, a bill bearing his registration number and the
address where the connection is installed;
ii. Goods declaration (i.e. bill of entry) in case of goods imported by him; or
iii. In case of goods purchased in auction, treasury challan in his name bearing his NTN.

b) Unclaimed input tax

Where a registered person did not deduct input tax within the relevant period, he may claim such input tax in the
return for any of the next 6 tax periods.
The Commissioner may, after satisfying himself that input tax adjustment is due and admissible, allow to take such
adjustment in the tax period as specified by the Commissioner even after 6 tax periods.
Alternatively, the registered person may apply for the refund within one year under section 66. Time limit of one
year u/s 66 may also be condoned by the Commissioner.

CONTEMPORARY TAXATION
 ADJUSTMENT OF INPUT TAX
c) Input tax cannot be claimed in certain situations
In the following cases a registered person is not entitled to reclaim/ deduct his input tax:
i. Supply of exempt goods and services.
ii. Goods and services not related to taxable supplies or acquired for personal or non-business use.
iii. Sales tax on services in respect of which input tax adjustment is barred under the respective provincial sales tax laws.
iv. Input tax on fake invoices.
v. Goods in respect of which sales tax has not been deposited into the government treasury by the supplier.
vi. Purchases in respect of which a discrepancy is indicated by the CREST or input tax of which is not verifiable in the
supply chain. CREST (i.e. COMPUTERISED RISK-BASED EVALUATION of SALES TAX) is the computerized program of the
sales tax department for analyzing and cross-matching of sales tax returns.
vii. Goods and services, may be specified by the FBR, which have not been declared by the supplier in his return at the
time of filing of return by the buyer.
viii. Input tax paid on purchases if he fails to furnish the information required by the FBR.
ix. Extra tax paid cannot be adjusted as input tax – section 3(5)

CONTEMPORARY TAXATION
ADJUSTMENT OF INPUT TAX
x. Vehicles other than stock-in-trade.
xi. Building material including cement, paints, electric and gas appliances, pipes sanitary
fitting etc. otherwise than stock in trade. However, input tax can be claimed on pre-
fabricated buildings.
xii. Input tax related to supply of goods and services to unregistered person for which sales
invoices do not bear NIC or NTN of the recipient.
xiii. Any goods which the FBR may specify. The FBR has specified the following goods acquired
otherwise than stock in trade by a registered person in respect of which input tax shall not
be reclaimed:

CONTEMPORARY TAXATION
 PAYMENT THROUGH BANKING CHANNEL –
SECTION 73
Payment for a transaction exceeding value of Rs.50,000 (other than utility bills) must be –
 made by a crossed banking instrument
 made within 180 days of the date of the issuance of the tax invoice [this period may be extended by the
Commissioner on any reasonable ground]
 from the business bank account of the buyer to the business bank account of the supplier
 If above conditions are not met –
 The buyer would not be allowed any input tax credit, zero rating etc.
 The supplier will not be allowed input tax credit, zero rating etc. if the amount received on account of supply is not
deposited in his business bank account already declared to the sales tax department.
Input tax can be claimed on accrual basis.
However, payment through banking channel is required within 180 days. If payment is made in cash or the payment is
not made within 180 days then input tax adjustment earlier made would be reversed.
On-line transfer of payment as well as payments through credit card is also allowed subject to the condition that such
transactions are verifiable from the bank statements of the respective buyer and supplier.
CONTEMPORARY TAXATION
 DEBIT AND CREDIT NOTE AND DESTRUCTION OF
GOODS: CHAPTER III OF THE SALES TAX RULES 2006
(a) Where a registered person has issued a tax invoice and the tax return or tax invoice needs to be modified as a result of:
 cancellation of supply;
 return of goods;
 change in the nature of supply;
 change in the value of supply; or
 any other such event

within 180 days then the registered person may issue a debit / credit note indicating specified information and make adjustments
accordingly. [Period of 180 days may be extended for any special reason]
Notes:
(a) Where tax liability increases as a result of issuance of debit note then the time limit of 180 days shall not apply.
(b) Where a registered person has deposited tax on advance against supply then the time limit for the issuance of debit or credit
note shall not apply.

CONTEMPORARY TAXATION
DEBIT AND CREDIT NOTE AND DESTRUCTION OF
GOODS: CHAPTER III OF THE SALES TAX RULES 2006
EXAMPLE:
Mr. A, a registered person, supplied goods of Rs.100,000 to Mr. B who is also a registered person
and received Rs.117,000 from Mr. B (including sales tax of Rs.17,000). Goods returned to Mr. A.
Mr. B will now issue a debit note.
Mr. A:
Mr. A has already received Rs.17,000 from Mr. B and paid to FBR as his output tax. Now he will
pay back Rs.17,000 to Mr. B and reclaim this amount from FBR.
In the case, Mr. A is allowed to deduct Rs.17,000 from his output tax.
Mr. B:
Mr. B has already paid Rs.17,000 to Mr. A and reclaimed this amount from FBR as his input tax.
Now he will receive Rs.17,000 from Mr. A and he is required to pay the said amount to FBR.
In this case, Mr. B is required to deduct Rs.17,000 from his input tax.

CONTEMPORARY TAXATION
 DEBIT AND CREDIT NOTE AND DESTRUCTION OF
GOODS: CHAPTER III OF THE SALES TAX RULES 2006
(b) Particulars of debit and credit notes
The debit / credit note shall show the following particulars:
 i. Name and NTN of the recipient and the supplier
 ii. Number and date of the original sales tax invoice including quantity, value and the amount of sales tax
 iii. The reason of issuance of the note
 iv. Signature and seal of the authorized person issuing the note
 v. Quantity being returned or the supply of which has been cancelled (in case of return of goods or cancellation of supply)
 vi. Original, revised and difference in the value and sales tax (in case of change of value)

(c) Where the buyer and supplier both are registered persons and sales tax liability is reduced as a consequence of credit note then the
adjustment is allowed only where the other party accepts the credit note by issuing corresponding debit note.

CONTEMPORARY TAXATION
 RESTRICTION ON INPUT TAX – SECTION
8B
A registered person shall not be allowed to adjust input tax in excess of 90% of the output tax for a particular tax period.
Input tax disallowed due to this restriction shall be carried forward to the next period and shall be treated as input tax of that period.
Input tax on acquisition of fixed assets or capital goods, if any, is claimable in the same tax period and restriction of the said 90% is not
applicable in this case.
Exceptions:
This restriction of 90% is not applicable in the following cases i.e. they can adjust input tax from output tax without any restriction:

1. Persons registered in electrical energy sector and gas distribution companies

2. Oil marketing companies, petroleum refineries and Pakistan Steel Mills

3. Fertilizers manufacturers

4. Distributors

5. Commercial importers provided the value of imports subjected to 3% value addition tax exceeds 50% of value of all taxable
purchases in a tax period

6. Persons making zero rated supplies provided value of such supplies exceeds 50% of value of all taxable supplies during a tax
CONTEMPORARY TAXATION
period
SUPPLY TO UNREGISTERED PERSON –
SECTION 8(6)
The Federal Government has power to specify any goods which cannot be supplied
by a registered person to any unregistered person.
It means that if a registered person makes such supplies then he shall not be allowed
to take credit of input tax.
The following goods have been specified that cannot be supplied by a registered
person to an unregistered person:
 i. Polypropylene granules;
 ii. Artificial filament tow;
 iii. Filter rods for cigarettes; and
 iv. Air-conditioning, chilling and humidification plants, cranes, propane storage tank, heat exchanger
and gas separator with few exceptions.

CONTEMPORARY TAXATION
 IMPORTERS – SECTION 7A(2) AND 12TH
SCHEDULE TO THE SALES TAX ACT 1990
The provisions of this schedule apply to all importers of taxable goods.

This Schedule shall not apply in the following cases:

Raw materials, intermediary goods and fixed assets imported by a manufacturer for in-house consumption;

o petroleum products imported by a licensed Oil Marketing Company;

o registered service providers importing goods for their in-house business use for furtherance of their taxable activity and not intended for further
supply;

Example

A courier company, being a service provider, may import packing material for the purpose of courier and in this case this schedule shall not apply.

o Liquefied Natural Gas (LNG) and Re-gasified Liquefied Natural Gas (RLNG);

o Mobile phones and satellite phones;

o Second hand and worn clothing and footwear;

o Gold and silver in un-worked condition; and

o Goods under 3rd Schedule on which sales tax is paid on retail price basis.
CONTEMPORARY TAXATION
IMPORTERS – SECTION 7A(2) AND 12TH
SCHEDULE TO THE SALES TAX ACT 1990
An importer shall pay sales tax @ 17% on import value in the normal manner.
However, sales tax on account of minimum value addition shall be collected at import
stage @ 3% of the value of goods imported in addition to the sales tax paid in the
normal manner.
The commercial importer shall charge sales tax from his customers in the normal
manner. The value addition tax paid at import stage shall form part of input tax and
claimable against output tax for determining his net liability.
The excess of input tax, if any, over output tax shall be carried forward to the next
tax period. However, the refund of excess input tax over output tax in respect of such
commercial imports shall not be allowed to a registered person except against zero
rated supply.
CONTEMPORARY TAXATION
IMPORTERS – SECTION 7A(2) AND 12TH
SCHEDULE TO THE SALES TAX ACT 1990
Example:
- sales tax rate 17%
- import value for the purpose of sales tax Rs.100,000
- sales tax paid at import stage Rs.20,000 @ 17% + 3%
- value of supply on subsequent sale Rs.106,000
- output tax @ 17% on Rs.106,000 = Rs.18,020
- excess of Rs.1,980 (i.e. Rs.20,000 – 18,020) can only be c/f and is not refundable

CONTEMPORARY TAXATION
RETAILERS – SECTIONS 2(43A), 3(9),
3(9A), 8B(6), 23(1)(B)
Retailers are divided into two categories as under:
1. Tier 1 retailers i.e. specified retailers are – section 2(43A):
(a) a retailer operating as a unit of a national or international chain of stores;
(b) a retailer operating in an air-conditioned shopping mall, plaza or centre, excluding kiosks;
(c) a retailer whose cumulative electricity bill during the immediately preceding 12 months exceeds
Rs.1,200,000;
(d) a wholesaler-cum-retailer, engaged in bulk import and supply of consumer goods on wholesale basis to the
retailers as well as on retail basis to the general body of the consumers;
(e) whose shop measures 1,000 square feet or more; and
(f) any other person as prescribed by the FBR.

2. Retailers other than Tier 1 retailers

CONTEMPORARY TAXATION
RETAILERS – SECTIONS 2(43A), 3(9),
3(9A), 8B(6), 23(1)(B)
Tier 1 retailers [i.e. specified retailers]
Tier 1 retailers are required to be registered and all the provisions shall apply in the
normal manner including charge of sales tax, filing of monthly return, input tax
adjustment / apportionment, debit / credit note, audit and so on.
All Tier-1 retailers shall integrate their retail outlets with FBR’s computerized system
for real time reporting of sales. In case of default, his input tax claim would be
reduced by 15%.

CONTEMPORARY TAXATION
RETAILERS – SECTIONS 2(43A), 3(9),
3(9A), 8B(6), 23(1)(B)
Retailers other than Tier 1 retailers
Retailers other than Tier 1 retailers are not required to be registered and they shall pay sales
tax with their monthly electric bills as under:
- 5% where the monthly bill does not exceed Rs.20,000; and
- 7.5% where the monthly bill exceeds Rs.20,000.

The above sales tax is the final discharge of their sales tax liability and they are not allowed
to claim input tax adjustment. Monthly sales tax return is not required to be filed and they are
not subject to audit.
The above sales tax in case of unregistered retailer with electric bill is in addition to the
sales tax otherwise chargeable with electric bills which is 17% normal sales tax + 3%
further tax + 5% extra tax.

CONTEMPORARY TAXATION
TAX INVOICE
A registered person needs to issue tax invoice which includes the following particulars in Urdu or English language:
- Must be gapless serially numbered
- Name, address and registration number of recipient and NIC/NTN of the unregistered person excluding supplies made by a
retailer where transaction value including sales tax does not exceed Rs.100,000
- Date of issue
- Quantity of goods and description
- Value exclusive of tax
- Amount of sales tax
- Value inclusive of tax
If it is subsequently proved that NIC provided by the purchaser was not correct then no tax or penalty shall apply against the
seller in case of sale made in good faith.
Not more than one tax invoice shall be issued for a taxable supply. A registered person may issue invoices to another
registered person electronically containing the above particulars.

CONTEMPORARY TAXATION
WITHHOLDING SALES TAX – SECTION
TH
3(7), 11 SCHEDULE
Purchase of taxable goods :
These provisions are applicable for the following in the capacity of a withholding agent (the agent):
- Federal and provincial government departments;
- Autonomous bodies;
- Public sector organizations;
- Companies as defined in the Income Tax Ordinance;
- Registered person making payment on account of advertisement services; and
- Registered person purchasing cane molasses.

The agent shall deduct sales tax i.e. withholding tax (WHT) on purchase of taxable goods at the
prescribed rates as under:

CONTEMPORARY TAXATION
 WITHHOLDING SALES TAX – SECTION 3(7),
TH
11 SCHEDULE
Purchaser as WHT agent Supplier Rate of WHT
a) Government departments / autonomous bodies / public Person other than 100% of the amount of sales tax on
sector organizations active taxpayer gross value of taxable supply
Registered person purchasing cane molasses

b) Companies as defined in the Income Tax Ordinance, Person other than 5% of the value of taxable supply.
2001. The registered agent shall not claim input tax of active taxpayer
WHT and shall pay to the FBR as a bottom line figure.

c) Other agent Registered supplier 20% of the amount of sales tax

not included in ATL
[10% in case of wholesaler, dealer
or distributor]
d) Registered recipient of advertisement services Person providing 100% of sales tax applicable
advertisement
services CONTEMPORARY TAXATION
WITHHOLDING SALES TAX – SECTION
TH
3(7), 11 SCHEDULE
Notes
(1) Suspended or blacklisted person is excluded from ATL and therefore purchase from a
suspended or blacklisted person is also subject to WHT.

(2) Working of WHT @ 5% in case of purchase from unregistered person shall be as under:

Value of supply 100,000

WHT 5% of (100,000 x 5%) = 5,000
(3) WHT is payable as a bottom line figure and should not be included in output tax as the
same has nothing to do with the restriction of 90% of output tax.

CONTEMPORARY TAXATION
WITHHOLDING SALES TAX – SECTION
TH
3(7), 11 SCHEDULE
Example:
Supplies made by a registered manufacturer other than active taxpayer (WHT 20%
of sales tax):
Value of taxable supplies excluding sales tax : Rs.1,000
Sales tax chargeable @ 17% : Rs.170
Sales tax to be deducted by the agent : Rs.34 (i.e. Rs.170 x 1/5th)
Sales tax payable by the agent to the supplier : Rs.136 (i.e. Rs.170 – 34)
Balance payable to the supplier by the agent : Rs.1,136 (i.e. Rs.1,000 +
136)

CONTEMPORARY TAXATION
WITHHOLDING SALES TAX – SECTION
TH
3(7), 11 SCHEDULE
Exclusions from WHT:
The provisions of WHT shall not apply to the supplies of the following goods and services,
namely:
i. specific supplies including electric, natural gas, petroleum products, vegetable ghee, cooking oil etc.
ii. telecommunication services;
iii.Goods specified in the 3rd Schedule to the Sales Tax Act, 1990;
iv. Supplies made by commercial importers who paid value addition tax at the time of imports;
v. Supplies made by an active taxpayer to another registered person with the exception of advertisement
services. 100% of sales tax shall be withheld in case of advertisement services;
vi. Supply of sand, stone, gravel / crush and clay to low cost housing schemes sponsored or approved by Naya
Pakistan Housing and Development Authority.

CONTEMPORARY TAXATION
REGISTRATION, COMPULSORY REGISTRATION AND
DE-REGISTRATION
(SECTION 14 & CHAPTER I OF SALES TAX RULES 2006)
A) Requirement of registration – section 14:
The following persons engaged in making taxable supplies in Pakistan (including zero
rated supplies) are required to be registered, namely:
i. a manufacturer not being a cottage industry;
ii. a Tier 1 retailer;
iii. an importer;
iv. a wholesaler, dealer or distributor;
v. An exporter who intends to obtain sales tax refund against his zero rated supplies;
vi. a person who is required under any Federal or Provincial law to be registered for the purpose of
any duty or tax collected or paid as if it were a sales tax under the Act.

CONTEMPORARY TAXATION
REGISTRATION, COMPULSORY REGISTRATION AND
DE-REGISTRATION
(SECTION 14 & CHAPTER I OF SALES TAX RULES 2006)
B) Application for registration – Rule 5
A person required to be registered shall apply for registration on computerized system before
making any taxable supply in the prescribed form indicating jurisdiction of RTO as per the
following criteria:
a) In case of public company, the place where the registered office is located;
b) in case of other companies,-
c) if the company is primarily engaged in manufacture, the place where the factory is situated;
and
d) if the company is primarily engaged in business other than manufacture, the place where main
business activities are actually carried on;
e) in case of a person not incorporated, the jurisdiction where the business is actually carried on;
and
f) in case of a person not incorporated, having a single manufacturing unit and whose business
premises and manufacturing unit are located in different areas, the jurisdiction where the
manufacturing unit is located.

CONTEMPORARY TAXATION
REGISTRATION, COMPULSORY REGISTRATION AND
DE-REGISTRATION
(SECTION 14 & CHAPTER I OF SALES TAX RULES 2006)
(C) Temporary registration – Rule 5A:
Where a manufacturer applies for registration without having installed machinery,
temporary registration as manufacturer shall be allowed within 72 hours to him for a
period of 60 days subject to furnishing of the complete list of machinery to be
imported along with import documents.

CONTEMPORARY TAXATION
REGISTRATION, COMPULSORY REGISTRATION AND
DE-REGISTRATION
(SECTION 14 & CHAPTER I OF SALES TAX RULES 2006)
D) Compulsory registration:
If a person, who is required to be registered, does not apply for registration, a notice shall be
issued to such person, giving an opportunity of being heard.
After receiving a written reply, and personal hearing if so desired by the person, the Commissioner
shall pass an order whether or not such person is liable to compulsory registration.
Where the person does not respond within the time specified in the notice, the Commissioner shall
transmit the particulars to computerized system, which shall compulsorily register the said person.
A compulsory registered person is required to comply with all the provisions of sales tax laws. In
the case of failure to do so, the Commissioner may issue notice for production of records and
appearance in person to assess the amount of sales tax payable and take any other legal action
against such person.
If it is subsequently established that a person was not liable to be registered but was wrongly
registered due to inadvertence, error or misconstruction, computerized system on the
recommendation of the Commissioner, shall cancel such registration and such person shall not be
liable to pay any tax, default surcharge or penalty.
CONTEMPORARY TAXATION
REGISTRATION, COMPULSORY REGISTRATION AND
DE-REGISTRATION
(SECTION 14 & CHAPTER I OF SALES TAX RULES 2006)
E) De-registration
Every registered person who ceases to carry on his business or whose supplies
become exempt shall apply to the Commissioner for de-registration and the
Commissioner may, on such application or on its own initiative, recommend to the
computerized system to cancel the registration from a date not later than 90 days
from the date of application or the date all the dues are cleared, whichever is later.
A registered manufacturer who, after registration, is covered by the definition of
cottage industry may also apply for de-registration.
Likewise, a retailer may also apply for de-registration on any valid reason.
The Commissioner, after satisfying himself, shall direct the applicant to discharge any
outstanding liability, if any, by filing a Final Return.

CONTEMPORARY TAXATION
 RECORD KEEPING – SECTION 22
A registered person making taxable supplies shall maintain and keep certain records / documents at his
registered office including the following:
1. Records of purchases/imports and supplies made indicating description, quantity, value of goods, name,
address and NTN of the buyer/ supplier and the amount of sales tax charged or paid;
2. Records of zero-rated and exempt supplies;
3. Invoices, credit / debit notes, bank statements, banking instruments, inventory records, utility bills, salary and
labour bills, agreement in respect of rent, sale and purchase;
4. Gate passes, inward or outward, and transport receipts;
5. Double entry sales tax accounts;
6. Business bank accounts should be declared;
7. Such other records as may be specified by the Board.
8. The above record shall be retained for 6 years or till the finalization of pending appeals, if any, whichever is
later.

CONTEMPORARY TAXATION
RECORD KEEPING – SECTION 22
Issuance of Electronic Invoices – (Chapter XIV, Sales Tax Rules 2006)
Every registered person, after seeking authorization from the Commissioner, may issue
electronic tax invoices. A copy shall simultaneously be transmitted to the Commissioner.
Electronic record and document shall be maintained for 6 years, on electronic media.
Sales tax invoice may be transmitted electronically where the authenticity of the origin
and integrity of the invoice data are guaranteed by means of either an advanced
electronic signature or electronic data interchange (EDI) or by any other means as
approved by the Commissioner.

CONTEMPORARY TAXATION
RETURN FILING REQUIREMENTS – (RULES
18 & 26 OF SALES TAX RULES 2006)
Every registered person is required to file monthly return electronically through FBR e-
portal by the prescribed date of filing of return.
A general due date of filing of return is 15th of the next month.
However, in case where due date is 15th of a month, the tax due shall be deposited by
15th and the return shall be submitted electronically by 18th of the same month.
Tax shall be deposited in National bank or any authorized bank on the prescribed
payment challan or through electronic payment system devised for this purpose.

CONTEMPORARY TAXATION
RETURN FILING REQUIREMENTS – (RULES
18 & 26 OF SALES TAX RULES 2006)
Electronic filing of sales tax:
A registered person shall enter data electronically of his supplies in Annexure-C (i.e.
output tax) and data of Debit or Credit Notes in Annexure-I by the 10th day of the
month next following the tax period.
This data shall be immediately available to the other parties in their “Purchase Data”
and “Debit or Credit Note Data” to enable them to claim input tax.
Data relating to purchases made from unregistered persons or from such registered
persons as allowed by the FBR in this respect shall be entered manually in Annexure-
A

CONTEMPORARY TAXATION
RETURN FILING REQUIREMENTS – (SECTIONS
18 & 26 OF SALES TAX RULES 2006)
Revised returns:
A registered person may file a revised return with the approval of Commissioner
within 120 days of filing the original return.
However, Commissioner’s approval is not required where the return is revised within
60 days or where tax payable in the revised return is more than the tax payable
declared in the original return.

CONTEMPORARY TAXATION
AUDIT – SECTION 25
Audit may be conducted by the Commissioner. An inquiry or investigation may also be conducted if
the Commissioner has sufficient evidence that the registered person is involved in tax fraud.
The Commissioner may conduct audit proceedings electronically through video link.
The Assistant Commissioner (Audit) shall issue his audit observations if he finds any defects during
audit. The registered person is required to submit his point of view within 15 days against such audit
observations.
The Assistant Commissioner shall issue an audit report specifying the sales tax demand, if any.
If the registered person makes payment of sales tax evaded or short paid voluntarily before
receiving notice for audit then no penalty shall be imposed. 25% penalty shall be imposed if the
same is paid during audit but before issuance of show cause notice [i.e. audit observations]. Full
penalty shall be imposed after issuance of show cause notice.

CONTEMPORARY TAXATION
THANKS

CONTEMPORARY TAXATION