Sales Tax Law of Pakistan

1. Trainer:
Fawad Hassan – ACA phavvad@gmail.com
0333-6036837
CFAP – 05
Advanced Taxation
[Tax Year 2021]
Sales Tax
Sales tax
withholding

2. 2
Sales Tax
Basic Structure
Output Tax
[S-2(20)]
- Input Tax
[S-2(14)]
(60)
100
40
Sales tax payable
Sales x Sales tax rate =
Purchase x Sales tax rate =
Sales Tax
Withholding
10
(10)
6
30 Payable – as it is !
Tax Period
1 month
Tax Period
How to
calculate
Output Tax?
Which Input
is
adjustable?
How much
of input is
adjustable?
DR/CR Notes
Sales Tax
Withholding
Important
SROs
Provincial Sales
Tax (Services)

3. 3
Tax Period [S-2(43)]
means
- period of 1 month OR
- such other period as specified by FBR, in official gazzette, with approval of Federal Ministry-in-charge

4. 4
Output Tax
How to calculate?
Time of Supply
[S-2(44)]
Rate of Sales Tax
[S-3]
Value of Supply
[S-2(46)]
Registered Person
[S-2(25)]
Taxable Activity
[S-2(35)]
Taxable Supplies
[S-2(41)]
Supply
[S-2(33)]
Taxable Goods
[S-2(39)]
Exempt Goods
[S-13]
Goods
[S-2(12)]
Exports
Local Supply
Imports
Un-registered
Person
To Registered
Person
Will charge Sales Tax

5. 5
Output Tax
How to calculate?
Registered Person [S-2(25)]
means a person who:
- is registered OR
- is liable to be registered under Sales Tax Act
Provided that a person liable to be registered but not registered shall not be entitled to any
benefit available to a registered person under any provision of Sales Tax Act or the rules made
thereunder

6. 6
Output Tax
How to calculate?
Taxable Activity [S-2(35)]
means any economic activity carried on by a person whether or not for profit
Includes
- business, trade or manufacture
- supply of goods, rendering of services
- one-off adventure in nature of trade
- anything done during commencement or termination of
economic activity
Does not include
- activity of employee to employer
- private recreation pursuit or hobby
- above activity done by person other
than individual

7. 7
Output Tax
How to calculate?
Taxable Supplies [S-2(41)]
Supply of taxable goods by
other than goods exempt u/s 13
and including zero rated goods u/s 4
Importer
manufacturer
wholesales
distributor
retailer

8. 8
Output Tax
How to calculate?
Taxable Goods [S-2(39)]
means all goods, other than those exempt u/s 13

9. 9
Output Tax
How to calculate?
Exempt Goods [S-13]
Goods mentioned in 6th Schedule
Goods specified by Federal Govt, through notification in official gazzette, where immediate action is needed for any of following:
- national security,
- natural disaster,
- national food security in emergency situations &
- implementation of bilateral and multilateral agreements
Power to deliver goods without payment of Sales Tax [S-60]
Federal Govt can authorize delivery of goods without payment of sales tax, in following cases and subject to such conditions as it may deem fit:
i. Imports for re-exportation by registered importer
ii. Imports of raw material & subsequent export after manufacture by registered manufacturer cum exporter

10. 10
Output Tax
How to calculate?
Goods [S-2(12)]
include moveable property,
other than
- actionable claims
- moneys
- stocks/shares/securities

11. 11
Output Tax
How to calculate?
Supply [S-2(33)]
means to dispose off goods as owner
Sale
OR
transfer of right
includes:
- sale or transfer under hire purchase agreement
- auction of goods to satisfy debt
- possession of goods immediately before the person ceases to be registered person
- transfer of goods manufactured (i.e., goods belonging to another person), to the owner or to person nominated by him
- putting to private, business or non business use
of goods produced during taxable activity
for purposes other than taxable supplies
FBR with approval of Federal Minister-in-charge, can also specify transactions which may or may not constitute supply

12. 12
Output Tax
How to calculate?
Value of Supply [S-2(46)]
• Local Supplies
• Imports

13. 13
Output Tax
How to calculate?
Value of Supply – Local Supplies
Discounted Price
Discounted Price X
- Sales Tax (X)
X
Condition: Discount is in conformity of norms of business
Sales tax invoice should show discounted price
No Discount
Consideration in money, which will be received
(including Federal Excise Duty & Provincial Taxes)
(excluding sales tax)
continued…

14. 14
Output Tax
How to calculate?
Value of Supply – Local Supplies
Taxable supply for consideration in kind OR partly in kind
Open Market Price X
- Sales Tax (X)
Same method will be used in following cases:
- supplies to associates made for consideration lower than open market price
- to determine value of processed goods, in case where exempt goods were provided to registered person for processing
- Instalement sales
- Any other case, where it is difficult to determine nature of transaction
Valuation Committee, comprising of representatives of trade and Inland Revenue shall determine value of supply in following
situation:
- where there is sufficient reason to believe that the value of a supply has not been correctly declared in the invoice
Valuation Committee shall be constituted by Commissioner
continued…

15. 15
Output Tax
How to calculate?
Value of Supply – Local Supplies
In case of a taxable supply, with reference to retail tax :
Price of taxable goods X
- Retail Tax (X)
In case of manufacture of goods belonging to another person:
Actual consideration received by the manufacturer for the value addition carried out
continued…
In case of supply of electricity by an independent power producer OR WAPDA:
amount received on account of energy purchase price only
excluding
amount received on account of capacity purchase price, energy purchase price premium, excess bonus, supplemental charges etc.

16. 16
Output Tax
How to calculate?
Value of Supply – Local Supplies
in case of supply of electric power and gas by a distribution company:
total amount billed
including
price of electricity and natural gas, as the case may be,
charges, rents, commissions and all duties and taxes local, provincial and federal
excluding
amount of late payment surcharge and the amount of sales tax
in case of purchase of used vehicle by registered person:
Difference between sale and purchase price on basis of valuation method prescribed by the Board

17. 17
Output Tax
How to calculate?
Value of Supply – Imports
In case of import of goods, other than those specified in 3rd Sched:
value of supply shall be as determined u/s 25 of Customs Act 1969,
Including
Customs Duty and Excise Duty

18. 18
Output Tax
How to calculate?
Time of Supply [S-2(44)]
Goods Services
Under Hire
Purchase
Other than Hire
Purchase
When agreement is
entered into
When:
- Delivered
- Made available
- Payment is received
which
ever
is earlier
In case part payment is received
In case of exempt
supplies
In all other cases
supply shall be accounted
for in tax period in which
exemption is withdrawn
supply shall be
accounted for in tax
period of supply
When rendered

19. 19
Output Tax
How to calculate?
Rate of Sales Tax
• Other than zero rated supplies [S-3]
• Zero Rated Supplies [S-4]
• Minimum value addition tax [S-7A]

20. 20
Output Tax
How to calculate?
Scope of Tax [S-3]
Goods supplied by Registered person
sales tax charged @ 17% on value of supplies/imports
1)
Supplies to un-registered person Further tax @ 3% Shall be charged
2)
Imports
Federal Govt can specify goods on which further tax not to be charged
FBR can also levy tax on:
- Production capacity
- Fixed basis
Sales tax @ mentioned in 10th Schedule
Retail Items (as per 3rd Schedule) sales tax charged @ 17% on retail price
this shall also be printed on each item
3)
continued…

21. 21
Output Tax
How to calculate?
Scope of Tax [S-3]
8th Schedule items shall be charged to Sales tax @ mentioned in 8th Schedule
4)
6)
these items are local supplies
Liability to pay tax:
- Supplies
Sales tax withholding provisions have been mentioned in 11th Schedule
7)
9th Schedule items shall be charged to Sales tax @ mentioned in 9th Schedule
5)
these items are imports
- Imports
Supplier
Importer
However section 8A specifies joint and several liability in a supply chain
Gas transmission and dispatch company supplying gas to CNG stations shall charge sales tax @ 17% of value of supplies to consumers
8)
Federal Govt can charge Extra Tax upto maximum of 17% on specified goods in addition to the taxes mentioned above
9)
continued…

22. 22
Output Tax
How to calculate?
Scope of Tax [S-3]
10) Retailer, other than Tier-1 Retailer, shall pay sales tax on basis of electricity bill as follows:
- bill upto Rs =20,000/- per month
- bill above Rs =20,000/- per month
5%
7.5%
This is in addition to sales tax charged on electricity consumption & input tax adjustment is not allowed against this sales tax
CIR shall issue order regarding exclusion of a person who is either a Tier-1 retailer, or not a retailer.
Tier-1 retailers [S-2(43A)]
means a retailer who is;
- operating as a unit of a national or international chain of stores;
- operating in an air-conditioned shopping mall, plaza or centre, excluding kiosks;
- cumulative electricity bill during the immediately preceding 12 consecutive months exceeds Rs 1,200,000/-
- 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
- a retailer, whose shop measures 1,000 square feet in area or more
- any other person OR class of persons prescribed by FBR
continued…

23. 23
Output Tax
How to calculate?
Scope of Tax [S-3]
- Tier-1 retailers shall pay sales tax @ applicable to the goods sold
- Customers of Tier-1 retailer shall be entitled to receive a cash back of up to 5% of the tax, from such date in the manner and to the extent, as may be prescribed by
FBR
- Tier-1 retailers shall integrate their retail outlets with FBR's computerized system for real-time reporting of sales
11)

24. 24
Output Tax
How to calculate?
Zero Rating [S-4]
Sales tax @ 0% shall be charged on following:
1) Exports
2) 5th Schedule items
3) Provisions and stores on conveyance proceeding to destination outside Pakistan, as mentioned u/s 24 of Customs Act 1969
4) Goods specified by Federal Govt through notification whenever circumstances exist to take immediate action for;
- national security,
- natural disaster,
- national food security in emergency situations &
- implementation of bilateral and multilateral agreements

25. 25
Levy and collection of tax on specified goods on value addition [S-7A]
1. Federal Govt may specify goods on which
a. sales tax to be charged with such limitations/restrictions
b. on difference in value of purchase and sale (either sold with/without value addition)
2. Minimum value addition sales tax shall be charged on goods mentioned in 12th Schedule
3. Federal Govt may amend provisions of 12th Schedule
Output Tax
How to calculate?

26. 26
Which input is adjustable?
• Tax credits not allowed [S-8]
• Determination of tax liability [S-7]
• Certain transactions not admissible [S-73]
• Destruction of goods [R-23]

27. 27
Which input is adjustable?
Tax credits not allowed [S-8]
continued…
A registered person shall not be entitled to deduct input tax paid on:
1. the goods or services which are not used or not to be used for themanufacture or production of taxable goods or for taxable supplies madeor to be made
by him;
2. the goods on which extra amount of tax is payable under sub-section (5)of section 3;
3. any other goods or services which the Board with the approval of the Minister Incharge of the Federal Government may by a notification in the official
Gazette specify;
4. the goods or services in respect of which sales tax has not been deposited in the Government treasury by the respective supplier;
5. fake invoices;
6. purchases made by a registered person in case he fails to provide information relating to his imports, purchases, sales etc. as required by the Board
through a notification u/s 26(5);
7. purchases in respect of which a discrepancy is indicated by CREST or input tax of which is not verifiable in the supply chain;

28. 28
Tax credits not allowed [S-8]
continued…
8. goods and services not related to the taxable supplies made by the registered person;
9. goods and services acquired for personal or non-business consumption;
10. goods used in, or permanently attached to, immoveable property, such as building and construction materials, paints, electrical and sanitary fittings,
pipes, wires and cables, but excluding pre-fabricated buildings and such goods acquired for sale or re-sale or for direct use in theproduction or
manufacture of taxable goods;
11. vehicles falling in Chapter 87 of the First Schedule to the Customs Act,1969, parts of such vehicles, electrical and gas appliances, furniture furnishings,
office equipment (excluding electronic cash registers), but excluding such goods acquired for sale or re-sale;
12. services in respect of which input tax adjustment is barred under the respective provincial sales tax law;
13. import or purchase of agricultural machinery or equipment subject to sales tax at the rate of 7% under Eighth Schedule to this Act; and
Which input is adjustable?

29. 29
Tax credits not allowed [S-8]
14. from the date to be notified by the Board, such goods and services which, at the time of filing of return by the buyer, have not been declaredby the
supplier in his return or he has not paid amount of tax due as indicated in his return.
15. Input tax on goods or services which are attributable to supplies made to un-registered person, on pro-rata basis, for which sale invoices do not bear NIC
or NTN of the recipient
Which input is adjustable?

30. 30
Determination of tax liability [S-7]
Conditions:
1. should be supported by Sales Tax Invoice bearing name and registration number of taxpayer who is claiming input tax
2. supplier must have declared such supply in his return and he has paid amount of tax due as indicated in his return
3. in case of supply of electricity or gas, a bill bearing his registration # and the address where the connection is installed
4. in case of imports, it should be supported by :
a. Bill of entry OR Goods Declaration
b. Sales Tax Registration number
c. Customs clearance u/s 79, 81 or 104
5. in case of purchase through auction, it should be supported by Treasury Challan (showing amount of sales tax paid) bearing name and registration
number of taxpayer who is claiming input tax
Which input is adjustable?
Output tax
- Input tax
X
(X)
X
excluding "Further Tax" charged @ 3% from un-reg person
if not claimed in relevant tax period, then can be claimed in
6 subsequent tax periods
Board may impose restriction on wastage of
material on which input has been claimed

31. 31
Certain transactions not admissible [S-73]
Input tax in respect of following transactions is not allowed:
1. Amount above Rs =50,000/- paid other than through crossed cheque or other banking channel
• Online transfer of funds and transaction through credit cards shall be considered transaction through banking channel, if verifiable from bank
statement of buyer and supplier
• Exception; utility bills
2. Credit purchases not paid within 180 days
3. Amount paid should be credited in business bank account of supplier
“business bank account” means a bank account utilized by the registered person for business transactions AND
declared to the Commissioner through Form STR-1 or change of particulars in registration database
4. Input in respect of >>>>sales made by registered manufacturer to un-registered persons
Exception; input in respect of sales made to an un-registered person,
• upto Rs 10 million a month &
• upto Rs 100 million a year
Which input is adjustable?
Not applicable on supplies made to:
1. FG/PG/LG not engaged in making
taxable supplies
2. Foreign mission, diplomats,
previliged persons
3. Persons not engaged in supply of
taxable goods
4. Any other specified by Board

32. 32
Destruction of goods [R-23]
If buyer returns goods because these are unfit for consumption and
are required to be destroyed by the supplier,
then goods shall be destroyed
after obtaining permission from Collector of Sales Tax, and
under supervision of officer of Sales Tax not below the rank of Assistant Collector.
The input tax in respect of such destroyed goods shall not be admissible
Which input is adjustable?

33. 33
How much of input is adjustable?
Adjustable input tax [S-8B]
1. Adjustment of input tax limited upto
2. Input tax in excess of above OR refund can be claimed subject to following conditions:
a. in case of Registered person whoes accounts are audited in accodance with Companies Ordinance 1984, a statement of value additon less than the
limit is certified by Auditors
b. in case of any other person, conditions as may be specified by FBR
c. adjsutment shall be made on yearly basis in 2nd month following end of financial year
3. FBR may also prescribe any other limit for any person or class of transactions
4. Penalty on Auditor:
Any auditor found guilty of misconduct in furnishing the certificate shall be referred to the Council for disciplinary action under section 20D of
Chartered Accountants, Ordinance, 1961
5. In case a Tier-1 retailer does not integrate his retail outlet, the adjustable input tax for whole of that tax period shall be reduced by 15%
90% of output tax
limit not applicable on
Fixed Assets and
Capital Goods
Input shall be limited to output tax in respect of locally mfgd
electric vehicles subject to reduced rate under 8th Sched

34. 34
DR / CR Notes
DR / CR Notes [S-9] [R-20 & 21]
If sales tax invoice has been issued by supplier, then in following situations a debit or credit note shall be issued by
supplier;
- cancellation of supply OR
- return of goods OR
- change in the nature of supply OR
- change in the value of the supply OR
- in case of any other event in which the amount shown in the tax invoice or the return needs to be modified
After issuance of debit or credit note a corresponding adjustment could be made in sales tax return

35. 35
Sales Tax Withholding
• On supply of Goods in Pakistan
• Services in Islamabad

36. 36
Important SROs

37. 37
Provincial Sales Tax
ICT
Punjab
Sindh
KPK
Baluchistan
Sales tax rates
Input not allowed
Withholding

38. 38