SECTION- B SALES TAX

Syllabus Weightage

Syllabus Teaching
Grid Weightage
Ref. Hours
C Sales Tax Laws 30-35 20-30

Syllabus Proficiency Testing

Learning Outcomes
Ref. levels levels
C. Sales Tax Laws

A Scope and Payment of Tax

Calculate sales tax (output and input) on taxable supplies P2 T2

(including zero-rated and exempt supplies).

Discuss the time and manner of sales tax liability and its P2 T2
paymenT

Calculate apportionment of input tax and carry P2 T2

forward/refund thereof

B Registration

Describe the types, requirements and procedures involved P2 T2

for registration, de-registration and returns.

C Book Keeping and Invoicing Requirements

List the records to be kept by a registered person and P2 T2

explain the related retention requirements and
procedures involved in the audit.

State the significance of tax invoice, debit and credit notes P1 T1

and their related requirements.

Explain the procedure for the destruction of goods P2 T2

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 Chapter
18
Sales tax definations

1. History of Sales Tax in Pakistan

Sales Tax was a provincial subject at the time of partition. It was being administered in the provinces of
Punjab & Sindh as provincial levy. Sales tax was declared a federal subject in 1948 vide General Sales Tax
Act, 1948 and this levy was transferred permanently to the Central Government in 1952. Sales tax was
levied at the standard rate of 6% at every stage of sales.

Later on, system of licensed manufacturers & wholesalers was instituted through the Sales Tax Act 1951
whereby they were allowed to purchase goods free of sales tax from each other and pay tax on sales to
unlicensed traders. Imports were chargeable to Sales Tax but the licensed manufacturers & wholesalers
were allowed to import goods without payment of Sales Tax. Later on Sales Tax became chargeable on
locally produced & imported goods at the time of their sales and import, respectively. The sales tax was
collected, under the Finance Ordinance 1956, on goods which were chargeable to Excise Duty, as if it were
a duty of Excise. In 1981, by virtue of an amendment in the Sales Tax Act 1951, the collection of Sales Tax
on non-excisable goods was also entrusted to the Excise Department.

In the late eighties Sales Tax was replaced with the Value Added Tax (VAT) in the country and accordingly
new enactment titled Sales Tax Act 1990 replaced Sales Tax Act 1951 with effect from 1.11.1990.

2. Sales Tax Definitions

Sales Tax
Sales tax means
a) The additional text or default surcharge leave under the sales tax act
b) A fine penalty or fee imposed or charged under the sales tax and
c) Any other some payable under the provisions of the sales tax act or the rules.

Output Tax:
Output Tax in relation to a registered person means
a) Tax levied under the sales Tax Act on a supply of goods made by the person
b) Tax levied under the federal excise Act 2005 in sales tax mode as a duty of excise on the
manufacture of the goods or rendering the services by the person
c) Sales tax levied on services rendered by the person under Islamabad capital territory (tax on
services), ordinance 2001
Input Tax
Input tax in relation to a registered person means
a) Tax Levied under sales Tax Act on supply of course to the person
b) Tax levied under sales Tax Act on the import of goods by the person
c) Tax levied under the federal excise Act 2005 in sales tax mode as a duty of excise on manufacture
of the goods rendering the services
d) Tax levied on services provided to the person under sales tax laws of provinces including
Islamabad and

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 e) Tax levied under sales Tax Act as adopted in the state of Azad Jammu and Kashmir on the supply
of goods received by the person
Person
Person means:
• Individual
• A company or association of persons incorporated formed organized or established in Pakistan
or elsewhere;
• The federal government
• A provincial government
• A local authority in Pakistan or
• A foreign government, a political subdivision of a foreign government or public international
organization

Registered Person:
It means a person who is registered or is liable to be registered under the Sales Tax Act. A person liable
to be registered but not registered shall not be entitled to any benefit available to a registered person.

Note: In view of the above definition, sales tax may be demanded by the sales tax department from an
unregistered person (who was required to be registered) despite the facts that he did not charge sales tax from
his customers and no input tax adjustment is available to him being unregistered

Taxable Activity
Taxable activity means any economic activity carried on by a person whether or not-for-profit and
includes
a) An activity carried on in the form of business, trade or manufacture
b) An activity that involves the supply of goods or rendering services or both to another person
c) A one-off adventure or concern in the nature of a trade and
d) Anything done or undertaken during the commencement or termination of the economic activity.
But does not include
a) The activities of an employee providing services in that capacity to an employer
b) An activity carried on by an individual as a private recreational pursuit or hobby and
c) An activity carried on by a person other than an individual which, if carried on by an individual,
would fall within sub clause (b).

In Pakistan, "taxable activity" generally encompasses a wide range of economic activities that generate
income through the sale of goods or services. Here are some examples illustrating how the definition
might apply:
1. Manufacturing Business: A factory producing consumer goods, such as textiles, appliances,
or packaged foods, is considered a taxable activity. Since it involves manufacturing goods for
sale to customers, it falls within the scope of an economic activity.
2. Professional Services Firm: A law firm, an accountancy practice, or a consultancy service (e.g.,
IT or marketing) is engaged in a taxable activity as it renders services to clients for fees.
3. Retail Store: A clothing store, grocery shop, or any other type of retail outlet engaging in selling
goods to the public is a taxable activity, as it involves the supply of goods to consumers.
4. Real Estate Development: A real estate company involved in buying, developing, and selling
property engages in taxable activities, as it undertakes trade and supply of property to clients.
5. One-off Adventure or Trade Activity: If an individual or business engages in a one-time
project, like an auction for assets or liquidation of a business's assets, it may be considered a
taxable activity under a one-off adventure or trade.

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 6. Online Sales or E-commerce: An individual or company selling products on e-commerce
platforms like Daraz or their own website is also engaged in a taxable activity, as they supply
goods to customers within or outside Pakistan.
Activities Exempted from Being Taxable
Some activities are specifically excluded:
• Employment Services: If a person works as an employee, their salary income is not considered
part of taxable activity as it’s considered remuneration for employment rather than an
independent economic activity.
• Private Hobby or Recreation: If someone sells paintings as a hobby and not for profit, this
would not qualify as a taxable activity.

Taxable Supply
Taxable supply means a supply of taxable goods made by an importer; manufacturer, wholesaler
(including dealer), distributor or retailer other than a supply of goods which is exempt and includes a
supply of goods chargeable to tax at the rate of zero percent.

Exempt supply
Exempt supply" means a supply which is exempt from tax

Zero rated supplies

Zero-rated supply means a taxable supply which is charged to tax at the rate of zero percent

Goods
They include every movable property other than actionable claims, money, stocks and shares and
securities.
• Immovable property is not subject to sales tax
• Actionable claim means a claim to a debt, promissory note etc.

Another example of actionable claim is:

A registered person issued discount cards/ coupons to its customer’s @Rs. 400 on the basis of
which the customer can avail discount of 20% on subsequent purchase of a specified quantity.
Discount cards/ coupons are actionable claims and therefore not subject to sales tax and sales tax
on goods shall be charged on discounted sales as the discount is in conformity with normal
business practice.

1. Examples of Goods (Movable Property)

1. Furniture: A sofa, dining table, or bed.
2. Vehicles: Cars, motorcycles, or bicycles.
3. Electronics: Laptops, smartphones, or televisions.
4. Jewelry: Rings, necklaces, or watches.
2. Examples of Exceptions (Not Subject to Sales Tax)
1. Land: A plot of land in a rural area.
2. Buildings: A residential house or a commercial building.
3. Trees: An orchard or a forest.
4. Permanent Structures: A bridge or a dam.
3. Examples of Actionable Claims
1. Debt: Money owed by a friend or a business partner.
2. Promissory Note: A written promise to pay a specific amount of money at a future date.

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 3. Cheque: A cheque issued by someone that you can deposit in your bank account.
4. Insurance Claim: A claim filed with an insurance company for a covered loss.
4. Examples of Money
1. Cash: Physical currency like dollars, euros, or yen.
2. Banknotes: Paper money issued by a government.
3. Coins: Metal currency like pennies, nickels, or quarters.
4. Digital Currency: Cryptocurrencies like Bitcoin or Ethereum.
5. Examples of Stocks and Shares
1. Stocks: Shares in a company like Apple Inc. or Microsoft.
2. Mutual Funds: Investment funds that pool money from many investors to purchase securities.
3. Bonds: Debt securities issued by corporations or governments.
4. Exchange-Traded Funds (ETFs): Funds that track an index and trade like stocks on an
exchange.

Taxable Goods
All goods other than exempt goods. It means that all goods are subject to sales tax unless specifically
exempt. On the other hand, services are not all inclusive and only specified services are subject to sales
tax under provincial ordinances.

Supply
Supply means a sale or other transfer of the right to dispose of goods as owner including such sale or
transfer under a hire purchase agreement and also includes;
a) Putting to private business or non-business use of goods produced in the course of taxable activity
for purposes other than those of making a taxable supply (For Manufacturer only)
Explanation (Sale = Dispatch to customer),(Transfer of right to dispose = Gift), (Hire Purchase
= Installment basis), (Private Use = Drawing/taken to home), (Business use = use in office
admin etc), (Non Business use = Charity)
b) Auction or disposal of goods to satisfy adept owned by a person and
c) Possession of taxable goods held immediately before a person ceases to be a registered person
Mr. Kamran registered in Jan 2023 and later he got de registered-on 1st Sep 2023, he has 1000
units in closing stock on 31st Aug 2023, these 1,000 units will be assumed as supply on
deregister
d) Manufacture of goods belonging to another person the transfer of the goods to the owner or to a
person nominated by him
Co. A buys white cloth, later they contacted the Co B for printing on behalf of Co. A, this printing
by Co. B will be considered as supply (Toll Manufacturing)

Notes for students:

a) The term supply represents a ‘sale’ or ‘other transfer of right to ownership’. Thus, a
person making a ‘gift’ to his son would be regarded as a ‘supply’ although it will not
be subject to sales tax as there is no ‘taxable activity’ involved.
b) b) Since, under leasing arrangement, the title of goods continues to vest with the
lessor, there is no ‘supply’ unless the asset is transferred to the lessee on
termination of lease.
c) Putting to personal use of goods manufactured constitutes a ‘supply’

Example 1:

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 The employees of the manufacturer of fridge are entitled to take a fridge for their home
consumption. This is putting to personal use of goods manufactured and therefore it is a
supply and subject to sales tax.
On the other hand, if a distributor of fridge provides a fridge to his employee under
employment package it will not constitute supply as the fridge is not being manufactured
but procured.
Example 2:
A restaurant, operating on commercial basis, has the practice of supplying food to the needy
individuals free of charge. This constitutes a ‘supply’. On the contrary, if Mr. A purchases
food from a hotel and provides the same free of charge to the needy individuals is a supply
but not a taxable activity and therefore not subject to sales tax on the part of Mr. A.

e) Supply of taxable goods, through auction or otherwise, to satisfy a debt constitute a ‘supply’. A
person is not paying his income tax liability and the Commissioner disposes his taxable goods
after attachment to satisfy his debt. This constitutes a supply and subject to sales tax. Similarly, a
bank can dispose of any taxable goods to recover its loan or interest due by the registered person.

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.

Importer
Means any person who imports any goods into Pakistan.

Manufacturer or Producer:
It means a person who engages in the production of goods
• whether or not the raw materials are owned by him and
• includes an assignee or trustee in bankruptcy, liquidator etc. or
• any manufacturer who disposes his assets in any fiduciary capacity.
Any person who holds or uses any patents, proprietary or other right to goods being manufactured shall
also be considered as manufacturer.

Toll Manufacturing
It shall be considered as manufacturing and subject to sales tax i.e. if a person is involved in providing
services such as textile printing, coloring, dying of raw materials of another person is considered as toll
manufacturing and sales tax shall be charged on conversion charges billed by the person as manufacturer.
Another common example is printing of books whether or not paper as raw material is owned by the
printer or not. The principal providing raw material for further processing is also considered as
manufacturer.

Manufacture or Produce:
It includes:
a) Any process in which an article is converted into another distinct article
b) Any process in which an article, is so changed that it becomes capable of being put to use
differently
c) Any process incidental to the completion of a manufactured product
d) Printing, publishing, lithography and engraving
e) Assembling, mixing, cutting, diluting, bottling, packaging, repacking.

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Distributor:
Means a person appointed by a manufacturer, importer or any other person for a specified area to
purchase goods from him for further supply and includes a person who is also engaged in supply as a
wholesaler or retailer.
Note: It is essential to note that the distributor is ‘purchasing’ the goods and then supplying it. This means
that he is a person who is ‘buying’ and ‘selling’ goods of other persons. It means that if a distributor is working
on commission basis i.e. he is not purchasing goods then he is not liable to sales tax. In this case, the principal
shall directly charge sales tax from the customers

Wholesaler
It includes a dealer and means any person who carries on, whether regularly or otherwise the business
of buying and selling goods by wholesale or of supplying or distributing goods, directly or indirectly, by
wholesale for cash or deferred payment or for commission or other valuable consideration or stores such
goods belonging to others as an agent for the purpose of sale; and includes a person supplying taxable
goods to a person who deducts income tax at source under the Income Tax Ordinance, 2001.
Retail Price:
It means the price fixed by the manufacturer or importer in case of imported goods inclusive of all charges
and taxes excluding sales tax at which a particular variety of items should be sold to the general body of
consumers or, if more than one price is so fixed for the same variety, the highest of such prices.
The FBR may specify areas or zones for determination of highest retail price for any brand or variety of
goods.
Note: The definition of retail price is important specially in the case of 3rd Schedule items.

Retailer:
It means a person supplying goods to general public for consumption provided that if he combines the
business of import and retail or manufacture with retail he shall notify and advertise wholesale price and
retail price separately and declare the address of his retail outlets.

Cottage industry
cottage industry” means a manufacturing concern, which fulfils each of following conditions,
(a) does not have an industrial gas or electricity connection;
(b) is located in a residential area;
(c) does not have a total labour force of more than ten workers; and
(d) annual turnover from all supplies does not exceed eight million rupees;

Company
(a) a company as defined in the Companies Act
(b) a body corporate formed by or under any law in force in Pakistan;
(c) a modaraba;
(d) a body incorporated by or under the law of a country outside Pakistan relating to incorporation of
companies;
(e) a trust, a co-operative society or a finance society or any other society established or constituted by
or under any law for the time being in force; or
(f) a foreign association, whether incorporated or not, which the Board has, by general or special order,
declared to be a company for the purposes of the Income Tax Ordinance 2001

Tax Fraction (Formula):

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 % 𝑜𝑓 𝑡𝑎𝑥
% 𝑜𝑓 𝑡𝑎𝑥+ 100
𝑥 𝑣𝑎𝑙𝑢𝑒

Note: Where sales tax is not separately charged then the amount of tax is calculated on the basis of tax
fraction formula e.g. An invoice shows an amount of Rs.2,360 without identifying the amount of sales tax.
Sales tax rate is 18% and the amount of sales tax works out to Rs.360 (i.e. 2,360 x 18 / 118).

Tax Fraud
It means doing the following knowingly, dishonestly or fraudulently without any lawful excuse:
• An act or omission to take any action in contravention of law with the intention of:
• Understating tax liability for two consecutive tax periods
• Overstating tax credit or refund to cause loss of Government revenue
• Making taxable supply without getting registration
• Falsifying the sales tax invoices

Tax Invoice
A sales invoice, which includes the following particulars in Urdu or English language:
- Must be gapless serially numbered
- Name, address and registration number of recipient and in case of supplies by a manufacturer or
importer to unregistered distributor, the NIC or NTN of such unregistered distributor.
- Date of issue
- Quantity of goods and description including count, denier and construction in case of textile yarn
and fabric
- Value exclusive of tax
- Amount of sales tax
- Value inclusive of tax
- 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.

Tax Period:
One month or such other period as the FBR may specify with the approval of Federal Minister-in- charge.

e-intermediary
Means a person appointed for filing of electronic returns and such other documents as may be prescribed
by the FBR on behalf of a registered person.

Open Market Price:

Consideration in money which that supply or similar supply would generally fetch in an open market.

Similar Supply
“Similar supply”, in relation to the open market price of goods, means any other supply of goods which
closely or substantially resembles the characteristics, quantity, components and materials of the
aforementioned goods.

Active Taxpayers List (ATL)

“Active taxpayer” means a registered person who does not fall in any of the following categories:
a) Who is blacklisted or whose registration is suspended; and
b) Who fails to file:

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 - Sales tax return by the due date for two consecutive tax periods;
- Return of income
- Quarterly or annual withholding tax statement
Rules 12A and 12B of the Sales Tax Rules 2006
(1) A non-active taxpayer shall not be entitled to-
a) File Goods Declarations for import or export;
b) Issue sales tax invoices;
c) Claim input tax or refund; or
d) Avail any concession under the Act or rules made thereunder.

(2) No input tax can be claimed in case of purchase from any non-active taxpayer.

(3) A non-active taxpayer may be restored as active taxpayer, if -

a) The registered person files the return or statement along with payment of any tax due;
b) The RTO or LTU, on satisfying itself after conducting audit / investigation recommends to FBR for
restoration; and
c) The FBR issues an order to such effect.

Associates / associated persons

(i)Two persons are associate where the relationship between the two is such that one may reasonably be
expected to act in accordance with the intentions of the other, or both persons may reasonably be
expected to act in accordance with the intentions of a third person;
(ii) one person sufficiently influences, either alone or together with an associate, the other person.

Note: Two persons shall be treated as sufficiently influencing each other, where one or both persons are
economically and financially dependent on each other and, decisions are made in accordance with the
directions, instructions or wishes of each other for common economic goal

(i) one person enters into a transaction, directly or indirectly, with the other who is a resident of
jurisdiction with zero taxation regime.
(ii) Two persons shall not be associates solely by reason of the fact that one person is an employee
of the other or both persons are employees of a third person;
(iii) Without limiting the generality of the above provisions the following shall be treated as
associates, namely: –
(a) an individual and a relative of the individual;
(b) members of an association of persons;
(c) a member of an association of persons and the association, where the member, either alone or together
with an associate or associates under another application of this section, controls fifty per cent or more
of the rights to income or capital of the association;
(d) trust and any person who benefits or may benefit under the trust;
(e) a shareholder in a company and the company, where the shareholder, either alone or together with an
associate or associates under another application of this section, controls either directly or through one or
more interposed persons–
− Fifty per cent or more of the voting power in the company;
− Fifty per cent or more of the rights to dividends; or
− Fifty per cent or more of the rights to capital; and
(f) two companies, where a person, either alone or together with an associate or associates under
another application of this section, controls either directly or through one or more interposed persons –
− Fifty per cent or more of the voting power in both companies;
− Fifty per cent or more of the rights to dividends in both companies; or
− Fifty per cent or more of the rights to capital in both companies.

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(i) Two persons shall not be associates under sub-clause (a) or (b) of paragraph (iii) above, where the
Commissioner is satisfied that neither person may reasonably be expected to act in accordance with the
intentions of the other.

(ii) In this clause, “relative” in relation to an individual, means:

(a) An ancestor, a descendant of any of the grandparents, or an adopted child, of the individual, or of
a spouse of the individual; or
(b) A spouse of the individual or of any person specified in sub-clause (a).

Associates Examples
Here are examples from Pakistan for each point of the definition of "associates":
1. **One person is expected to act in accordance with another's intentions or under a third
person’s influence**:
- *Example*: A prominent business owner in Pakistan and his close advisor or partner might be
expected to act in line with each other’s intentions, especially in decisions affecting their joint venture.
Alternatively, both may align with the intentions of a larger holding company or family head
influencing their actions.

2. **One person sufficiently influences the other, or they are economically dependent**:
- *Example*: A parent company in Pakistan and its subsidiary are economically dependent, with the
parent directing the subsidiary’s financial decisions, resource allocation, and operational strategy for
a common goal (e.g., expansion into new regions).

3. **Transactions between residents and zero-tax jurisdictions**:

- *Example*: A Pakistani company might enter into licensing or royalty agreements with a related
entity in the UAE, a zero-tax jurisdiction. Here, the related entities are associates, with financial flows
possibly structured to take advantage of the UAE’s tax regime.

4. **Employment relationship alone does not make two persons associates**:

- *Example*: An employee at a large Pakistani multinational company and the company’s CEO are not
considered associates solely because of their employment relationship, unless there is another basis
for association (e.g., family relationship or shareholding).

5. **Associates include an individual and their relative**:

- *Example*: A business owner and their sibling, who also holds shares in the business, would be
considered associates due to their familial relationship.

6. **Members of an association of persons (AOP)**:

- *Example*: Partners in a law firm registered as an AOP in Pakistan are associates, as they share
rights to the AOP’s income and are jointly responsible for the firm's economic outcomes.

7. **A member of an AOP and the association if they control 50% or more rights**:
- *Example*: A major investor holding over 50% of the income rights in a housing development
association would be considered an associate of the AOP.

8. **Trust and a person benefiting from it**:

- *Example*: A wealthy family establishes a trust in Pakistan for educational scholarships for family
members. Any family member benefiting from the trust (or eligible to benefit) is considered an
associate of the trust.

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9. **Shareholder controlling 50% or more of a company’s rights**:
- *Example*: A shareholder holding 60% of the voting power and dividend rights in a Pakistani
manufacturing company is an associate of that company, given their substantial control.

10. **Two companies controlled by the same person with 50% or more rights in both**:
- *Example*: A large industrial group in Pakistan, with a person or family owning over 50% in two
companies within the group (e.g., a textiles company and a steel company), would have these
companies considered associates due to common control.

11. **Two persons not associates if they cannot reasonably be expected to act in accordance**:
- *Example*: Two shareholders in a public company in Pakistan, each holding a small stake, are not
associates if they have no mutual influence or alignment of intentions.

12. **Definition of a “relative”**:

- *Example*: In a Pakistani business, an individual and their son, or an adopted child, or a spouse,
would be considered associates due to their status as relatives.

Question
a) Sarfraz is a sole proprietor. Under the provisions of the Sales Tax Act, 1990, discuss whether each
of the following individuals/entities is an associate of Sarfraz:
(i) Jehanzeb: He has been working as an accountant for the past twenty years and has been responsible
for filing the tax returns of both Sarfraz and his business.
(ii) Falah Limited (FL): Sarfraz owns 20% shares in FL, while his mother owns 30% shares in FL.
(iii) Sarah: She is the adopted daughter of Sarfraz’s wife, Fatima. Sarah was adopted by Fatima before
her marriage to Sarfraz.
(iv) Umeed Trust (UT): Sarfraz is one of the trustees of UT. The trust was established to oversee the
operations of an orphanage. (06)

Solution
(i) Two persons cannot be associates solely by reason of the fact that one is
employee of another. Therefore, Jahanzeb is not an associate of Sarfraz.
(ii) A shareholder in a company and the company can be associates where the
shareholder either alone or together with an associate controls fifty percent or
more of the voting power in the company.
In the given scenario, Sarfraz together with his mother holds 50% shareholding
in FL so FL is the associates of Sarfraz.
(iii) Adopted child falls under the definition of relative. Therefore. Sarah is the
associates of Sarfraz.
(iv) Trust and any person who benefits or may benefit under the trust shall be
associates. In the given scenario, although the beneficiaries are orphans, UT may
be an associate of Sarfaraz, if he is deriving any benefit from the trust.

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Time of Supply
This definition is very important as it determines as to when the sales tax incidence arises.
Time of supply depends upon different situations as under:

Situation Time of supply

Normal Time at which goods are delivered or made available to
the recipient of the supply or when payment is received
whichever is earlier
Supply through hire purchase Date of agreement
agreement
Services the time at which the services are rendered or provided
(There will be no treatment of Advance, it will be ignored unless the goods are available or supplied)
If any part payment is received for a supply in a tax period
(a) it shall be accounted for in the return for that tax period; and
(b) In respect of exempt supply, it shall be accounted for in the return for the tax period during which the
exemption is withdrawn from such supply.

1. Supply of Goods (Other than Hire Purchase)

Clause (a): The time of supply is the earlier of when goods are delivered or made available, or when
payment is received.
Example:
A supplier in Pakistan sells 500 mobile phones to a retailer for PKR 1,000,000. The timeline of events
is as follows:
• February 1: Supplier delivers the mobile phones.
• February 5: Supplier receives partial payment of PKR 300,000.
• March 1: Supplier receives the remaining balance of PKR 700,000.
Taxable Event: Since goods were delivered on February 1, this is the date of the taxable event, even
though part payment was received on February 5. Thus, the PKR 1,000,000 will be reported in the
return for February.
For Part Payment:
If only the PKR 300,000 was received during the tax period (February), it should be recorded as part
of the February tax return.

2. Supply of Goods Under a Hire Purchase Agreement

Clause (b): For goods supplied under a hire purchase agreement, the time of supply is when the
agreement is entered into.
Example:
A furniture store enters a hire purchase agreement with a customer for a sofa set valued at PKR
120,000 on April 10. According to the terms, the customer will pay PKR 10,000 per month over 12
months.
Taxable Event: The full amount of PKR 120,000 becomes taxable at the time the hire purchase
agreement is entered into (April 10), regardless of when payments are received. Therefore, the PKR
120,000 should be included in the April tax return.
For Part Payment:
In each tax period when the monthly installment is received, that amount should also be accounted
for as part of that period's tax return.

3. Supply of Services
Clause (c): For services, the time of supply is when the services are rendered or provided.

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Example:
An accounting firm completes audit services for a client on July 15 with a total fee of PKR 200,000. The
client pays:
• July 20: PKR 80,000 (partial payment).
• August 5: PKR 120,000 (remaining balance).
Taxable Event: The taxable event occurs on July 15, when the audit services are completed. The full
PKR 200,000 should be included in the July tax return.
For Part Payment:
The PKR 80,000 payment received in July must be recorded in the July return, while the remaining
PKR 120,000 will be recorded in August's tax return as it’s received in that period.

4. Exempt Supply (When Exemption is Withdrawn)

If an initially exempt supply loses its exemption status, it becomes taxable from the period in which the
exemption is withdrawn.
Example:
A healthcare clinic provides medical services, which are initially exempt from tax. On September 1, a
policy change withdraws the exemption. The clinic charges PKR 50,000 for services provided each
month.
Taxable Event: Since the exemption was withdrawn on September 1, services provided from
September onwards are taxable. Thus, PKR 50,000 for September services will be included in the
September tax return, even if part payment is received earlier

Question
a) Following are the independent transactions carried out by different enterprises:
(i) In November 2022, an agreement for the acquisition of machine on hire purchase was signed. In
December 2022, the machine was acquired under this agreement against 25% down payment of Rs.
30 million. The remaining balance is to be paid in 24 equal monthly installments of Rs. 4.5 million
each.
(ii) In December 2022, an advance of Rs. 12 million was received against delivery of goods to be made
in March 2023.
(iii) A machine of Rs. 38 million was purchased in July 2022 but it was put to use in November 2022.
(iv) Goods of Rs. 7 million were sold in September 2022 but due to limited storage capacity at buyer’s
premises, the goods were delivered in January 2023.
Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder, identify and
discuss the time (month) of supply for the chargeability of sales tax in respect of the above
transactions. (05)

Solution

13 | P a g e
Value of Supply

Definition
Value of supply, in respect of taxable supply, is the consideration in money including all Federal and
Provincial duties which the supplier receives in respect of the supply excluding the amount of sales tax.

Normal Rule
The FBR has power to fix the value of any imported goods or taxable supplies.
Actual Value or FBR Value [higher will be value of Supply]
However, if the import or supply is made at a value higher than the value fixed by the FBR then the actual
value shall be considered.

Conditions to Claim Discount

Trade discount shall be excluded provided that
(i) the tax invoice shows the discounted price; and
(ii) (ii) the amount of discount is in conformity with the normal business practice.
The different situations are as under

Situation Value of supply

Normal case Consideration in money including all Federal and
Provincial duties which the supplier receives in
respect of the supply excluding amount of sales tax.

Mark up on credit sales shall not be taken into value

of supply
Consideration is partly or fully in kind Open market price excluding sales tax

Sale is made on installment basis where the Open market price excluding sales tax
price includes mark up or surcharge [It means that mark up or surcharge included in
credit sales or installment sale is not subject to sales
tax]

Supply between associated persons Value as in the normal case or open market price
excluding sales tax whichever is higher

14 | P a g e
In case of imported goods excluding 3rd Value determined under the Customs Act including
Schedule items custom and excise duty levied thereon.

If there is reason to believe that the value is Value determined by the Valuation Committee
under declared in the tax invoice comprising representatives of trade and the sales tax
department
Manufacture of goods belonging to another Actual consideration for value addition to such
person i.e. toll manufacturing goods

Supply of electricity by an independent power Energy purchase price only.

producer or WAPDA
[The amount of capacity purchase price, energy
purchase price premium, excess bonus, supplement
charges etc. shall not be included in the value of
Supply]
Supply of electric and gas by a distribution Total amount billed including price of electricity or
company gas charges, rent, commission and all local,
provincial and federal duties and taxes but
excluding:
- late payment surcharge
- sales tax; and
- any subsidy provided by the federal or
provincial government
Supply of used vehicles after value addition on Difference between sale price and purchase price
which sales tax has already been paid at the time
of import or
manufacturing
Taxable Supply with reference to retail tax The price fixed by the manufacturer or board

Question
Following are the independent transactions carried out by different enterprises during the month
of February 2022:
(i) Taxable goods of Rs. 800,000 were sold to one of the dealers. The amount was net of 20%
trade discount which was in accordance with market norms. The discounted price was not
shown on the tax invoice.
(ii) Taxable goods of Rs. 1,500,000 were used for internal testing and evaluation purposes. 40%
of these goods were locally procured while remaining 60% of these goods were own
manufactured.
(iii) Advance of Rs. 600,000 was received for goods to be delivered in April 2022.
(iv) 1,000 units of taxable goods listed in the Third Schedule were sold at a unit price of Rs. 5,000.
Retail price of each unit was Rs. 6,000.
(v) New parts of Rs. 1,200,000 were issued free of cost to replace the defective parts under
warranty.
(vi) Taxable goods of Rs. 400,000 were sold at credit terms of 2/10, n/30. Customer paid the
amount within ten days and availed the discount.
Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder, state the value

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of supply chargeable to tax for the month of February 2022. Also state the reason for your
treatment. (08)
Solution

Value of Supply Reason

1 1,000,000 Discount can be claimed if it is as per market norms and has been
(800,000 ÷ 80%) shown on tax invoice. Since the amount of discount has not been
shown on tax invoice, it shall be chargeable to tax at gross amount.
2 900,000 Use of own manufactured items for in-house consumption will be
(1,500,000×60%) subject to sales tax. However, goods locally procured is not deemed to
be supply.
3 Nil Time of supply is the time at which goods are delivered or make
available to the recipient. Since goods were not delivered in February,
this was not chargeable to tax in the month of February.
4 6,000,000 For taxable supplies specified in third schedule, sales tax is charged on
(1000×6,000) the retail price of goods.
5 Nil Free replacement of defective parts is considered as original supply
and not a separate supply so this was not chargeable to tax in February
return.
6 400,000 Cash discount shall not be deducted while computing value of supply,
so gross amount shall be chargeable to tax.

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 Chapter
19
Sales tax provisions

Basic concepts including VAT

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, the sales tax is a multi-stage tax 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 and to relieve the intermediaries (i.e. the persons other than the final
consumer) from any tax burden.

Sales tax rates and who is liable to pay sales tax

Tax Rates
Normal Sales tax rate is 18%, it means when we supply or buy goods 18% tax will be charged

How Sales Tax Mechanism works

It is assumed in this example that every person in the supply chain is a registered person for sales tax
purpose and subject to sales tax @ 18% (restriction on input tax and special provisions for commercial
importers and retailers are not considered for this example):
S. Input Output Pay to
No. Transactions Tax Tax FBR
1 Importer’s import value Rs.9,200 1,656 1,656
Importer sells to a wholesaler of raw materials for 1,980
Rs.11,000 + 1,980 sales tax 1,656 324
= margin is Rs.1,800
2 Wholesaler of raw materials buys at Rs.11,000 + 1,980
input tax and sells to a manufacturer for Rs.11,600 + 1,980 2,088 108
2,088 sales tax
= margin is Rs.600
3 Manufacturer buys at Rs.11,600 + 2,088 input tax (his
other manufacturing expenses are Rs.9,000) and sells
toa wholesaler of finished product at Rs.23,600 + 4,248 2,088 4,248 2,160
sales tax
= margin is Rs.3,000

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 4 Wholesaler of finished product buys at Rs.23,600 + 4,248
input tax and sells to a retailer at Rs.24,000 + 4,320 sales 4,248 4,320 72
tax
= margin is Rs.400
5 Retailer buys at Rs.24,000 + 4,320 input tax and sells to
consumer at Rs.24,600 + 4,428 sales tax 4,320 4,428 108
= margin is Rs.600
TOTAL 4,428

In VAT system every person in a supply chain is supposed to be a registered person but it is very difficult
in Pakistan due to certain problems e.g. chips manufacturer may be a company for which registration,
record keeping, input-output adjustment etc. are not a big issue but a chips manufacturer may be an
individual running a small bakery who cannot be expected to comply all such legal requirements.
Likewise, every retailer in Pakistan is not expected to comply with all the legal requirements.
Therefore, a structure has been developed in Pakistan whereby two types of exemptions have been given
as under:
• Turnover based exemption i.e. small manufacturers termed as cottage industry and retailers
(other than specified retailers i.e. Tier 1 retailers) are exempt from registration and they do not
charge sales tax on their supplies; and
• Items based exemption i.e. certain products are exempt without any turnover limit e.g. books,
newspapers, locally manufactured computers and laptops
The following chart explains the situation

Importer Registration is required.

Importer shall pay sales tax on import stage and
subsequently charge sales tax on value of taxable
supply
However, commercial importers shall pay sales tax as
per relevant provisions
Wholesaler / Distributor Registration is required and sales tax shall be charged
on value of taxable supply
Retailer Only Tier 1 retailers (i.e. specified retailers) are
requiredto be registered.
Manufacturer
Cottage industry Exempt as per serial 3, Table 2, 6th Schedule
Other than cottage industry Registration is required and sales tax shall be charged
on value of taxable supply

Further Tax
Further tax @ 4% shall also be charged when the goods are supplied to unregistered persons or inactive
taxpayers.
It means that the tax rate in this case is 18% + 4%.
However, further tax shall not be charged in the following cases [Exceptions]
i. Supplies to Government, semi-government and statutory regulatory bodies
ii. Supply of goods directly to end consumers including supplies by a retailer
iii. Items falling under 3rd Schedule i.e., items on which sales tax is chargeable on retail price
iv. Electric supplied to domestic and agricultural consumers
v. Natural gas supplied to domestic consumers and CNG stations
vi. Supply of second-hand worn clothing and other worn articles

18 | P a g e
 vii. Goods falling under zero rating;
viii. Foam products including spring mattresses; and
ix. White crystalline sugar, fertilizers, jet fuel 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.

“The FBR has power to fix a lower or higher rate on specified items”
Example of higher rate on imports
25% sales tax rate is applicable on import and supply of various items such as:
Juices Vehicles in CBU condition Chocolates
Cigarettes Tissue papers Shampoos
Jewelry

Example of higher rate on supply of locally manufactured goods

25% sales tax rate is applicable on the following locally manufactured goods:
• Vehicles of 1400 cc and above
• Double cabin picks up vehicles

Reduced rates
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:
• 1% on locally manufactured electric vehicles such as electric buses, electric rickshaw and electric
motorcycle
• 12.5% on locally manufactured or assembled cars of up to 850cc
• 8.5% on locally manufactured Hybrid Electric Vehicles up to 1800 cc
• 12.5% on electric vehicle in CBU (completely built unit) condition of up to 50 kwh battery
• 1% on manufacture or import of drugs under the Drugs Act, 1976 including raw materials for the
production of pharmaceutical products.
• 3% on supply of locally manufactured jewelry articles of precious metal
• 5% on import of computers, laptop and notebook in CBU (completely built unit) condition

Capacity Tax
The FBR has authority to levy and collect sales tax on fixed basis or on the basis of capacity of plant in
lieu of sales tax on the basis of value of supply of goods [may also be called as capacity tax].
The tax shall be levied and collected, in the mode and manner specified therein on-:
a. production capacity of plants, machinery, undertaking, establishments or installations producing or
manufacturing such goods; or
b. 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 steel products/ship plates

In respect of goods, specified in the Thirteenth Schedule, the minimum production for a month shall be
determined on the basis of a single or more inputs as consumed in the production process as per criterion
specified in the Thirteenth Schedule and if minimum production so determined exceeds the actual
supplies for the month, such minimum production shall be treated as quantity supplied during the month
and the liability to pay tax shall be discharged accordingly.

Tax on supply to CNG stations

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 ▪ 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 18% 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

Who is liable to pay sales tax?

Liability to pay the sales tax to the sales tax department shall be of the person:
• 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];
• importing the goods, in the case of goods imported into Pakistan; and
• 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.

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 made or services provided in Pakistan

Change in the tax rates

1.Taxable supply in Pakistan shall be charged to tax at such rate as is in force at the time of supply

2.Import of goods shall be charged at such rate as is in force at the time of declaration is presented
whether for home consumption or for clearance from warehouse as the case may be except:
a) Where goods declaration is presented in advance of the arrival of conveyance, the tax shall be charged
at the rate as is in force on the date of the manifest of the conveyance is delivered.
b) In case of clearance from warehouse if the tax is not paid within 7 days of presenting the declaration,
the tax shall be charged at the rate in force on the date of actual payment.

1. Taxable Supply at the Time of Supply

Rule: Tax on a taxable supply is charged at the rate in force at the time of supply.
Example:
A Pakistani manufacturer sells machinery to a retailer on March 10, 2025, with delivery and payment
made on the same day. As of this date, the tax rate is 17%. However, on March 20, 2025, the tax rate
increases to 18%.
• Since the supply occurred on March 10, the applicable tax rate is 17%, even though the rate
later increased. The tax charged on the machinery sale is PKR 850,000 if the sale price is PKR
5,000,000.
• Calculation: 5,000,000×0.17=850,0005,000,000 \times 0.17 =
850,0005,000,000×0.17=850,000

2. Import of Goods at Time of Declaration

Rule: Import tax is based on the rate in force when the import declaration is filed, either for home
consumption or warehouse clearance.
Example A (Home Consumption):
An importer files a goods declaration for medical equipment on April 8, 2025, when the tax rate is

20 | P a g e
 10%. The equipment arrives and is cleared from customs on April 12, 2025.
• Since the declaration was presented on April 8, the 10% tax rate applies even if the rate
changes after this date.
• Calculation: For a value of PKR 2,000,000, the import tax is PKR 200,000.
• 2,000,000×0.10=200,0002,000,000 \times 0.10 = 200,0002,000,000×0.10=200,000
Example B (Advance Declaration):
The importer files a goods declaration on May 1, 2025, in advance of the goods arriving. The goods
arrive on May 8, 2025, by which time the tax rate has increased to 12%.
• If the goods manifest was delivered on May 8, the 12% tax rate will apply.
• Calculation: For goods valued at PKR 1,000,000, the tax due is PKR 120,000.
• 1,000,000×0.12=120,0001,000,000 \times 0.12 = 120,0001,000,000×0.12=120,000

3. Warehouse Clearance Within 7 Days

Rule: If goods are cleared from a warehouse within 7 days of presenting the declaration, the tax rate
at the declaration date applies.
Example:
An importer presents a declaration on June 1, 2025, for goods valued at PKR 3,000,000, and the tax
rate is 15%. The tax is paid and goods are cleared on June 6, 2025.
• Since tax was paid within 7 days, the rate on June 1 (15%) applies, even if the rate changes
later.
• Calculation: Import tax due is PKR 450,000.
• 3,000,000×0.15=450,0003,000,000 \times 0.15 = 450,0003,000,000×0.15=450,000

4. Warehouse Clearance After 7 Days

Rule: If the tax is paid after 7 days of presenting the declaration, the rate in force on the payment date
applies.
Example:
An importer presents a declaration on July 1, 2025, when the tax rate is 14%. However, they only pay
the tax on July 10, 2025—more than 7 days later, by which time the rate has increased to 16%.
• Since the payment was delayed, the rate on July 10 (16%) applies.
• Calculation: For goods valued at PKR 4,000,000, the tax is PKR 640,000.
• 4,000,000×0.16=640,0004,000,000 \times 0.16 = 640,0004,000,000×0.16=640,000

Zero Rated Supplies – [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 [Exception to Zero Rating]
• Export to any country as notified by the Federal Government [examples are: export to
Afghanistan, Iran or China; and (ii) export to Afghanistan by land route]
• Export intended to be re-imported into Pakistan
• Goods held for export but not exported

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

21 | P a g e
 Zone (EPZ)
• Imports or supplies made to Gwadar Special Economic Zone excluding vehicle
• Supply of raw materials and machinery to registered exporters under Export Facilitation Scheme,
2021 or any other government scheme for this purpose
• Supply of stores and provisions for consumption aboard conveyance proceeding outside Pakistan
e.g. international flight or ship
• Packing materials used for zero rated supplies
• Electric and gas consumed by manufacturer-exporters
• other specified items subject to certain conditions including pencils, pens, milk etc.

b) Refund of input tax on zero rated supply

i. Refund of input tax on zero rated supplies shall be made within 45 days of filing of return.
ii. If a registered person is liable to pay any tax, default surcharge or penalty payable under any law
administered by the FBR, the refund of input tax shall be made after adjustment of unpaid
outstanding amount of tax, default surcharge and penalty.
iii. Where there is reason to believe that a person has claimed incorrect input tax credit or refund,
the proceedings against him shall be completed within 60 days may be extended up to 120 days
by an officer not below the rank of an Additional Commissioner and may be extended by the Board
up to 9 months for reasons to be recorded in written.
iv. In case of delayed refund, the FBR shall pay an additional amount to the registered person @
Karachi Inter-bank Offered Rate (KIBOR) per annum if there is no dispute in the claim of the
refund.

Note for students:

Additional amount, if any, received on delayed refund from the sales tax department istaxable for income tax
purpose under the head “income from other sources”.

Exempt Supplies [6th schedule]

a) Certain 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 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:

1) Local supply of live 2) Agricultural produce 3) Holy Quran and other
animals and live poultry not subject to any holy books or
[sales tax shall be paid further manufacture recorded in audio or
on import stage] video cassettes
4) Goods imported by 5) Goods, excluding 6) Goods temporarily
diplomats, diplomatic electricity and natural imported into
missions or privileged gas, supplied to Pakistan meant for
persons hospitals run by subsequent export
charitable hospitals of
50 or more beds
7) Goods manufactured 8) Fertilizers 9) Tractors
and exported from
Pakistan which are
subsequently imported
in Pakistan within one
year

22 | P a g e
 10) Local supply of breads, 11) Machinery, equipment 12) Import of raw
nans and chapattis and materials materials and
imported for use in machinery by
EPZ registered exporters
authorized under
Export Facilitation
Scheme, 2021 or any
other government
scheme for this
purpose
13) Supply of fixed assets 14) Specified goods
otherwise than stock in including locally
trade against which manufactured laptops,
input tax adjustment is computers and
not available e.g. resale notebooks and import
of vehicles, furniture or of parts for
office equipment being a manufacturing of
depreciable asset laptops, computers
and notebooks

c) Difference between zero rated supplies and exempt supplies:

No output tax shall be charged and collected on both zero rated and exempt supplies but input tax, if
leviable, can be reclaimed only in respect of zero rated supplies.

Differences between zero rated supplies and exempt supplies in detail are as under:
Zero rated supply Exempt supply
Definition “Zero rated supply” means a taxable “Exempt supply” means a supply which is
supply which is chargeable to sales tax not chargeable to sales tax.
at 0%.

Goods Goods exported or goods listedin 5th Goods specified by FBR through
Schedule notifications and goods listed in 6th
Schedule
Invoice Tax invoice shall be raised butsales 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
refundable from FBR adjustable nor refundable

Registration Sales tax registration is required Sales tax registration is not required
where a person wants to claim refund where a person is engaged exclusively in
exempt
Supplies

Third Schedule [Retail Item]

Sales tax is charged @ 18% (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.

23 | P a g e
Retail Price:
It means the price fixed by the manufacturer or importer in case of imported goods inclusive of all charges
and taxes excluding sales tax at which a particular variety of items should be sold to the general body of
consumers or, if more than one price is so fixed for the same variety, the highest of such prices.
The FBR may specify areas or zones for determination of highest retail price for any brand or variety of
goods.
Note: The definition of retail price is important specially in the case of 3rd Schedule items.

Retailer:

It means a person supplying goods to general public for consumption provided that if he combines the
business of import and retail or manufacture with retail he shall notify and advertise wholesale price and
retail price separately and declare the address of his retail outlets.
Retailers are divided into 2 categories
1) Tier -1 Retailer (Specified Retailer)
2) Other than Specified retailers

1.Tier 1 retailers i.e. specified retailers are:

(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)a retailer who has acquired point of sale accepting payment through debit or credit cards or any other
digital payment service;
(f)a retailer whose deductible withholding tax under sections 236G or 236H of the Income Tax Ordinance,
2001 during the immediately preceding 12 consecutive months has exceeded the threshold as may be
specified by the FBR;
(g)any other person as prescribed by the FBR.

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, input tax claim would be reduced by 60%.

Service charges by Tier – 1 retailers

Service charge @ Re.1 per invoice shall be collected by Tier – 1 retailers integrated with the FBR and the
said service charge shall be deposited along with the filing of monthly sales tax return without adjustment
of any input tax against the said service charge.

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.

24 | P a g e
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 18% normal sales tax + 4% further tax + extra tax at
specified rates..

Items covered under 3rd Schedule 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
• Household electrical goods, including ACs, 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.
• Paints, 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 for students: Further tax is not applicable on 3rd Schedule items, and no discount is allowed
Federal Government has directed to charge sales tax @ 25% on import and subsequent supply of
following third schedule goods

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:

25 | P a g e
 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

Input tax can be claimed on accrual basis subject to payment within a prescribed period (i.e 6 tax periods)

Input tax paid (not on accrual basis) with electric and gas bills can be claimed by a registered consumer
and in this case the gas or electric bill shall be regarded as tax invoice for sales tax purposes provided the
bill contains NTN and address of the business premises declared to the Commissioner of such consumer.

Where the electric or gas connection is not in the name of such person, NTN of such person is mentioned
on such bill along with the address of such person as given by him in the application for registration for
the purpose of sales tax.

Question
Please explain whether sales tax can be claimed in respect of sales tax paid on electricity billswhich
are not in the name of the company being a tenant. (Marks 3)

b) 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.
Alternatively, the registered person may apply for the refund within one year u/s 66. The Commissioner
has power to grant extension of these time limits in special cases.

Question
Explain the procedure for the admissibility of the input tax which is not claimed by omission in
the relevant tax period. (Marks 5)

c)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
e.g., tissue papers purchased by a manufacturer for his own use. In this case he will be a direct consumer
of such goods who cannot reclaim input tax.
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.

26 | P a g e
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

Note for students:

Input tax is not allowed where a discrepancy is indicated by the automated system of FBR
i.e. computerized system for cross-matching of input tax

However, a discrepancy would be allowed on provisional basis and the registered person would be advised by the
FBR to contact the supplier and persuade him to disclose his relevant output tax.

If the supplier did not declare his relevant output tax in the next tax period then input tax allowed earlier provisionally
would be adjusted or recovered.

Important point: If a registered person does not have tax invoice then provisional adjustment would not be allowed
as existence of tax invoice bearing his name and NTN isa basic condition for claiming input tax.

It means that if a registered person has tax invoice for his purchases and a discrepancy is indicated by the
computerized system then provisional adjustment of input tax would be allowed.

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
x. Vehicles other than stock in trade
[Fork lifting vehicle is treated as machinery as per appellate authorities’ decision and therefore input tax can be
claimed on fork lifting vehicle]
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 supplies of goods and services to unregistered distributor 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:
• Food, beverages, garments and consumption on entertainment
• Gifts and giveaways including dairies and calendars
• Supply of electricity and gas to residential colonies
• Office equipment (excluding electronic fiscal cash registers), furniture and fixtures
• Crockery, cutlery etc.
Question

The Sales Tax Act, 1990 specifies the principle for determining the tax liability whereby the eligible
input tax is deducted from the output tax on taxable supplies of a registered person.
Does the law specify any departure from the said principle relating to the levy of tax on taxable supplies?
Please discuss by narrating the relevant provisions of law. (Marks 6)

Question
A registered person is entitled to deduct input tax paid or payable during the tax period from the output tax
subject to compliance of section 7 and 73 of the Sales Tax Act. Section 8 of the Act however places certain
restrictions on goods on which input tax is not deductible.
You are required to specify those goods on which input tax is not allowable under section 8.(Marks 8)

Payment through banking channel

Payment for a transaction exceeding value of Rs.50,000 (other than utility bills) must be –
• made by a crossed banking instrument

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 • 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.
Explanation. — “business bank account” shall mean a bank account utilized by the registered person for
business transactions, declared to the concerned Commissioner through Form STR 1 or change of particulars
in registration database.

Note: this section is not applicable on registered person supplying goods to unregistered person. However,
supplier is required to deposit cash in his business bank account to claim input tax.

Adjustment of payment against receivable

If payment is adjusted against any amount receivable from the same party then payment shall be deemed
to have been made subject to the following conditions:
- Sales tax shall be charged and paid by both parties, wherever applicable; and
- Approval of the Commissioner for such adjustment is required.

Limit on supplies to unregistered person

A registered person shall make all taxable supplies to registered persons excluding supplies not
exceeding Rs.100 million in a financial year and Rs.10 million in a month, failing which the supplier shall
not be entitled to claim input tax adjustment as attributable to such excess supplies to unregistered
person.

The provisions of section 73(4) shall not apply to supplies made to:
(a) Government departments, authorities, etc. not engaged in making of taxable supplies;
(b) Foreign Missions, diplomats and privileged persons;
(c) All other persons not engaged in supply of taxable goods.

Moreover, it is clarified by the FBR that the limit of Rs.10 million per month / Rs.100 million per year is
applicable on goods supplied to one specific person.

Apportionment of Input Tax Rules

These rules apply to the registered person supplying taxable and exempt goods simultaneously. Input tax
relating wholly to taxable supplies is fully adjustable / reclaimable. If it relates wholly to exempt supplies
it is not admissible.

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Sales tax on goods and services including utilities used for both taxable and exempt supplies shall be
apportioned according to the following formula:
Residual input tax credit =
Value of taxable supplies x Residual input tax
Value of taxable + exempt supplies
Residual input tax is sales tax on goods and services being used for taxable as well as exempt supplies but
does not include sales tax paid related wholly to taxable supplies or wholly to exempt supplies.
Monthly apportionment of input tax shall be treated as provisional adjustment and at the end of each
financial year the registered person shall make final adjustment on the basis of taxable and exempt
supplies of that year.

Note for students: According to the above rule, apportionment formula is applied where inputtax is common for
two categories i.e. taxable supplies and exempt supplies.

However, in practice there are three categories i.e. taxable at normal rate, taxable at zero rateand exempt
supplies. Zero rate supplies is a separate category due to the following reasons:
• a separate refund application is processed for zero rated supplies; and
• Restriction on input tax is not applicable for zero rated supplies.

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 Apportionment Table

Value of Input Tax Input tax on Fixed Asset

Supply

Taxable Supplies [Net] XXX [e] aaa bbb

Zero rates Supplies [Net] XXX [f] aaa’ bbb’

Exempt Supplies [Net] XXX [g] aaa’’ bbb’’

Total XXX [Y] AAA [Q] BBB [W]

𝑄 𝑄 𝑄 𝑊 𝑊 𝑊
𝑌
∗ 𝑒 = 𝑎𝑎𝑎 𝑌
∗ 𝑓 = 𝑎𝑎𝑎’ 𝑌
∗ 𝑔 = 𝑎𝑎𝑎’’ 𝑌
∗ 𝑒 = 𝑏𝑏𝑏 𝑌
∗ 𝑓 = 𝑏𝑏𝑏’ 𝑌
∗ 𝑔 = 𝑏𝑏𝑏’’

For Input Tax Against Supplies For Input Tax Against Fixed Assets

Restriction on input tax

A registered person other shall not be allowed to adjust input tax in excess of 90% of the output tax for a
particular tax period. Therefore, in case of lower profit margin he is required to pay 10% of his output
tax to FBR.

It means that if his input tax during a tax period exceeds his output tax as a result of loss or overbuying
(closing stock), he is not entitled to get refund instead he will pay 10% of his output tax to FBR.
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.
FBR has power to increase the limit from 90% to 95% in any particular case including all Tier-1 retailers
who have integrated all their point of sales (POS) with the FBR.
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.Distributors
4.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.
5.Persons making zero rated supplies provided value of such supplies exceeds 50% of value of all taxable
supplies during a tax period.
6.Registered persons other than manufacturers, making supplies of 3rd Schedule items on which sales
tax has been paid on retail price, provided the value of such supplies exceeds 80% of all taxable supplies
7.CNG dealers and petroleum dealers
8.Telecommunications

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Note for students:
This restriction u/s 8B is not applicable in case of zero-rated supply and commercial imports. The above exceptions
shall apply for the local purchase / supply where the conditions above mentioned are fulfilled.

Excess input tax

Input tax disallowed due to restriction u/s 8B or excess input tax where the said restriction is not applicable may
be carried forward to the next tax period and treated as input tax of that period.

Note for students:

Refund of zero-rated items including exports may be claimed at the time of filing of return and need not be carried
forward.

Debit and Credit Note and Destruction of Goods

(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 adjust accordingly. [Period of 180 days may be extended for any special reason]
Note for students:
Where tax liability increases as a result of issuance of debit note then the time limit of 180 days shall not
apply.

EXAMPLE:
Mr. A, a registered person, supplied goods of Rs.100,000 to Mr. B who is also a registered person and
received Rs.118,000 from Mr. B (including sales tax of Rs.18,000). Goods returned to Mr. A. Mr. B will
now issue a debit note.
Mr. A: Mr. A has already received Rs.18,000 from Mr. B and paid to FBR as his output tax. Now he will pay
back Rs.18,000 to Mr. B and reclaim this amount from FBR.
In the case, Mr. A is allowed to deduct Rs.18,000 from his output tax.

Mr. B: Mr. B has already paid Rs.18,000 to Mr. A and reclaimed this amount from FBR as his input tax.
Now he will receive Rs.18,000 from Mr. A and he is required to pay the said amount to FBR.
In this case, Mr. B is required to deduct Rs.18,000 from his input tax.

(b) 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.

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However, if a corresponding debit note is not issued by the other party then provisional adjustment
would be allowed to the registered person by the automated system of FBR and he would be advised by
the FBR to contact and persuade the other party to issue corresponding debit note. If it is not done in the
next tax period then input tax allowed earlier provisionally would be adjusted or recovered.

(d)If the other party is unregistered then adjustment shall be made only by the registered person on the
basis of credit / debit note issued by him.

(e)Where such goods are subsequently supplied then sales tax shall be charged in the normal manner.

Goods need to be destroyed:

Where such goods are returned by the buyer on the ground that the same are unfit for consumption and
are required to be destroyed then the same shall be destroyed under the supervision of the sales tax
department and the input tax credit in respect of goods so destroyed shall not be admissible.

However, in case of companies manufacturing perishable food items having an expiry date, if such items
are returned on account of being unfit for consumption and are then destroyed, the credit note may be
issued with 15 days of the return of goods and adjustment may be made accordingly.

Supply to unregistered person

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 specified goods 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.

Purchase of Stocks before Registration

Purchaser of stocks who has paid sales tax on such goods is required to apply for registration within 30
days of such purchases if he wants to take credit of his input tax provided that he holds tax invoice and
such goods constitute verifiable unsold stock on the date of registration.
This period is 90 days in case of imports.

Commercial importers
A commercial importer shall pay sales tax @ 18% 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 above concept of minimum value addition is not applicable on import of raw materials and fixed
assets imported by a manufacturer for in-house consumption and few specified goods.

The commercial importer shall charge sales tax @ 18% from his customers. 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.

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Excess Tax Collection
If any person collected output tax which was not collectable or collected excess output tax by mistake and
the incidence of such tax has been passed on to the consumer, he shall pay the amount of such tax to the
Government and no claim for refund in respect of such amount shall be admissible.

The burden of proof that the incidence of tax has not been passed to the consumer shall be on the person
collecting the tax.

Here are 3 examples illustrating the situation where output tax was either not collectable or was collected
in excess, but the burden of proof falls on the person collecting the tax, according to the rules you
mentioned.
Example 1: Over-collection of Output Tax by Mistake
Scenario: A retailer sells goods worth PKR 10,000 to a customer and mistakenly collects 18% output tax
(PKR 1,800) instead of the correct 10% (PKR 1,000). The retailer passes the excess tax amount to the
government but is seeking a refund for the excess tax collected.
• Sale amount: PKR 10,000
• Correct output tax (10%): PKR 1,000
• Incorrectly collected output tax (18%): PKR 1,800
• Excess tax collected: PKR 800 (1,800 - 1,000)
• Burden of proof: The retailer must prove that the excess tax was not passed on to the customer.
Solution:
• The retailer paid the PKR 800 excess tax to the government, but since the retailer cannot claim a
refund if the tax incidence was passed on to the customer, the retailer must prove that the
customer did not bear the excess tax.
• If the retailer can prove that the price paid by the customer did not include the excess PKR 800
(perhaps through pricing evidence or contractual terms), they may avoid the non-refund
condition. If the customer did bear the excess, no refund can be granted.
Conclusion: If the retailer cannot prove that the tax burden was not passed on, the refund claim for the
excess PKR 800 is inadmissible.

Example 2: Tax Not Collectible from the Consumer

Scenario: A company imports machinery and sells it to a local customer for PKR 50,000. The output tax
on the sale should be 18%, amounting to PKR 9,000. However, the company erroneously charges a 0%
tax rate because it believes the sale qualifies as an export, which is zero-rated.
• Sale amount: PKR 50,000
• Correct output tax (18%): PKR 9,000
• Incorrectly collected output tax (0%): PKR 0
• Mistake: The sale was incorrectly treated as zero-rated when it was taxable.
Solution:
• The company mistakenly did not collect any output tax (0%) on the sale.
• The company is now required to pay the PKR 9,000 tax to the government.
• Since the company did not collect the tax from the customer, the burden of proof lies with the
company to demonstrate that it did not pass the tax burden to the customer.
• If the company can prove that the price quoted to the customer was without tax, and the customer
was not aware of the error, the tax burden may not have been passed on.
Conclusion: If the company cannot prove the tax was not passed on to the consumer, it must pay the tax
to the government, and no refund will be granted.

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Example 3: Excess Output Tax Collected and Passed On to the Consumer
Scenario: A restaurant provides catering services and collects an 18% output tax on the total bill. The
customer is charged PKR 15,000, and the restaurant collects PKR 2,700 as output tax. However, the
correct output tax should have been calculated at 12% (PKR 1,800).
• Total sale amount: PKR 15,000
• Correct output tax (12%): PKR 1,800
• Excess output tax collected (18%): PKR 2,700
• Excess tax collected: PKR 900 (2,700 - 1,800)
• Burden of proof: The restaurant must prove that the customer did not pay the excess PKR 900.
Solution:
• The restaurant has collected PKR 900 in excess tax.
• Since the restaurant has collected excess tax from the consumer, the burden of proof is on the
restaurant to demonstrate that the PKR 900 excess was not included in the total amount charged
to the customer.
• If the restaurant can prove the customer was charged the correct amount and the excess tax was
absorbed by the restaurant, the refund may be considered.
• However, if the customer paid the excess tax (which is likely in this scenario), the restaurant
cannot claim a refund.
Conclusion: If the restaurant cannot prove that the excess PKR 900 was not passed on to the consumer,
it cannot claim a refund, and must pay the excess tax to the government.

Joint & several liability of registered person in supply chain where tax unpaid.
A registered person receiving taxable supply from another registered person is in the knowledge or has
reasonable grounds to suspect that some or all tax payable in respect of that supply or any previous or
subsequent supply of the goods would remain unpaid [burden to prove this fact is on the tax department],
then such person, as well as the person making the taxable supply shall be jointly and severally liable for
payment of such unpaid tax.
However, FBR may exempt any transaction from the provisions of this section.

Here are 3 examples illustrating the situation where a registered person receiving taxable supply from
another registered person is liable for unpaid tax, along with joint and several liability for payment:
Example 1: Supplier Not Paying Output Tax
Scenario: A wholesale distributor (Person A) receives taxable supplies of electronic goods from a
manufacturer (Person B) who is also a registered person. Person A is aware that Person B has a history
of late tax payments and there are reasonable grounds to suspect that Person B might not pay the due tax
on the current supply.
• Total supply value: PKR 500,000
• Output tax due on the supply (18%): PKR 90,000
• Person A's suspicion: Person A knows that Person B has not paid tax on several previous
supplies and is aware of outstanding tax liabilities.
Solution:
• As per the rules, if Person A, the recipient, has reasonable grounds to suspect that the tax payable
on the supply (or any previous or subsequent supply) will remain unpaid, both Person A and
Person B will be jointly and severally liable for the unpaid tax.
• In this case, the tax department could hold both Person A and Person B liable for the PKR 90,000
of unpaid tax.
• If Person B fails to pay the tax, Person A could be required to pay the tax, even though Person A is
not directly responsible for collecting it from the customer.

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Conclusion: If the tax department proves that Person A knew or had reasonable grounds to suspect that
Person B would not pay the tax, Person A will be jointly liable for the unpaid PKR 90,000.

Example 2: Taxpayer Receiving Supplies from Suspended Registered Person

Scenario: A retailer (Person C) purchases goods from a wholesaler (Person D) who is a registered person.
However, Person C finds out that Person D’s registration is suspended due to non-compliance with tax
payment and reporting requirements. Despite this, Person C proceeds with the purchase of goods worth
PKR 200,000, which is subject to an 18% output tax (PKR 36,000).
• Supply value: PKR 200,000
• Output tax on the supply: PKR 36,000
• Person C's knowledge: Person C knows that Person D’s registration is suspended and that the
wholesaler has unpaid tax liabilities from previous transactions.
Solution:
• Under the law, since Person C is aware that Person D's registration is suspended, Person C may
be jointly and severally liable for the unpaid tax (PKR 36,000) if Person D fails to pay it.
• If Person C continues to receive supplies from Person D, who is non-compliant with tax payment,
the tax authorities may hold Person C accountable for the unpaid tax on this transaction.
• The tax department will require both Person C and Person D to pay the unpaid tax. The burden of
proving this suspicion lies on the tax department.
Conclusion: Person C is jointly liable for the unpaid PKR 36,000 of output tax since they knew about
Person D's suspension and unpaid taxes.

Example 3: Supplier Not Paying Tax on Previous Supplies

Scenario: A construction company (Person E) purchases raw materials from a supplier (Person F) who
is a registered person. Person E knows that Person F has a history of not paying taxes on previous taxable
supplies. The value of the supply is PKR 1,000,000, and the output tax on the supply is 18% (PKR
180,000).
• Supply value: PKR 1,000,000
• Output tax on the supply: PKR 180,000
• Person E's suspicion: Person E is aware that Person F has outstanding tax liabilities and that
Person F has been involved in disputes with the tax authorities regarding tax payments for
previous supplies.
Solution:
• Since Person E has reasonable grounds to suspect that Person F may not pay the tax on the current
supply (or any future supply), Person E and Person F are jointly and severally liable for the unpaid
tax.
• If the tax department determines that Person F did not pay the tax, they may approach both
Person E and Person F to recover the PKR 180,000 in unpaid taxes.
• Person E is responsible for ensuring that the tax is paid, even though Person E is not directly liable
for collecting it from the customer.
Conclusion: Person E and Person F will be jointly and severally liable for the unpaid PKR 180,000 of
output tax due to Person E’s awareness of Person F's past tax non-payment history.

Supply of parts free of cost under warranty

(a) Price charged to the customers for the vehicle includes the cost of warranty period related claims.
(b) The FBR also clarified that in such cases, where the final product is taxable, no sales tax is payable
except on supply of final product.
Therefore, no sales tax should be charged on replacement, free of charge, of the defective parts under
warranty.

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Here are illustrative examples based on the scenario you provided where the price charged to the
customer for a vehicle includes the cost of warranty period related claims, and no sales tax is payable
on the replacement or free of charge replacement of defective parts under warranty:
Example 1: Vehicle Sale with Warranty
Scenario: A car dealership sells a vehicle to a customer for PKR 1,000,000. The vehicle comes with a
2-year warranty covering all major parts. The total price includes a portion that accounts for the
expected cost of warranty-related claims (e.g., defective parts, repairs).
• Vehicle sale price: PKR 1,000,000
• Warranty cost portion included in the price: PKR 50,000 (allocated for warranty claims on
defective parts)
• Sales tax on the vehicle (18%): PKR 180,000
The customer is charged PKR 1,180,000 (including sales tax) at the time of sale.
Solution:
• Since the vehicle price includes the cost of warranty-related claims, the total sales tax is
calculated only on the final sale price of the vehicle, which is PKR 1,000,000.
• If any parts of the vehicle fail within the warranty period, and replacements are provided free
of charge, no additional sales tax will be applied on the replacement parts.
For example, if a defective part like a brake pad is replaced during the warranty period:
• The replacement is free of charge.
• Since this is a warranty-related replacement, no sales tax is due on the cost of the replacement
part, even though it may be a taxable product.
• The sales tax was already accounted for at the time of the initial sale when the customer paid
PKR 1,000,000 for the vehicle.
Conclusion: No sales tax is charged on warranty replacements, and only the original sale price of the
vehicle is subject to sales tax.

Example 2: Mobile Phone with Warranty

Scenario: A retailer sells a mobile phone to a customer for PKR 30,000, including a 1-year warranty.
The retailer knows that some phones may require a part replacement during the warranty period. The
warranty is included in the sale price.
• Phone sale price: PKR 30,000
• Warranty cost portion included in the price: PKR 2,000 (estimated cost for warranty claims)
• Sales tax on the phone (18%): PKR 5,400
The customer is charged PKR 35,400 (including sales tax).
Solution:
• The price of the phone already includes a portion for warranty-related claims.
• If, during the warranty period, a part such as the phone screen needs to be replaced, no sales
tax will be levied on the replacement screen because the replacement is provided free of
charge under the warranty.
• The sales tax is only charged on the initial sale of the phone for PKR 30,000, and no further tax
is applied to the warranty claim.
Conclusion: The retailer does not charge additional sales tax on the replacement parts under
warranty, as the sales tax was already paid at the time of the initial sale of the phone.

Example 3: Washing Machine with Warranty

Scenario: An appliance store sells a washing machine for PKR 50,000, which includes a 1-year
warranty. The cost of warranty-related repairs and part replacements is included in the overall price.
• Washing machine sale price: PKR 50,000
• Warranty cost portion included in the price: PKR 3,000
• Sales tax on the washing machine (18%): PKR 9,000
The customer is charged PKR 59,000 (including sales tax).
Solution:
• The washing machine’s sales price of PKR 50,000 includes an estimate for warranty-related
costs (PKR 3,000).

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 • If a part of the washing machine, such as the motor, fails during the warranty period, the
appliance store will replace the motor at no additional cost to the customer.
• The replacement motor is considered part of the warranty and is provided free of charge.
• No sales tax is charged on the replacement motor, as the sales tax was already applied when
the machine was initially sold.
• The customer does not pay any extra tax during the warranty period for the motor
replacement.
Conclusion: Sales tax is only due on the initial sale of the washing machine, and no additional tax is
applied on warranty-related replacements.

Summary:
In all these examples:
• The sales tax is only applied on the initial sale of the product (vehicle, phone, washing
machine).
• No sales tax is charged on the replacement of defective parts during the warranty period
because the cost of warranty-related claims is included in the initial sale price.
• No additional tax is applied on warranty services, as the tax was already paid when the final
product was sold to the customer.
These examples should help clarify the application of sales tax on warranty-related claims.

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 Chapter
20

Sales tax registrations & de-

registration
Registration, Compulsory registration and De-registration (Section 14 & Chapter I – Sales Tax Rules
2006)

Abbreviations used:
LTU Large Taxpayers Unit
RTO Regional Tax Office

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.

Discontinuation of gas and electricity connections

Gas and electricity connection may be discontinued through general order by the FBR in the following
cases:
-any person, including tier – 1 retailers, who fails to register for sales tax purpose; or
-notified tier – 1 retailers registered but not integrated with the FBR
Upon registration or integration, the FBR shall notify the restoration of gas or electricity connection.

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:

Person Area where registration required

1 in case of public company the place where the registered office is located
2 in case of public company (i) if the company is primarily engaged in manufacture,
the place where the factory is situated; and
(ii) if the company is primarily engaged in business
other than manufacture, the place where main
business activities are actually carried on;

38 | P a g e
 3 in case of a person not the jurisdiction where the business is actually carried on
incorporated
4 in case of a person not the jurisdiction where the manufacturing unit is located:
incorporated, having a single
manufacturing unit and whose
business premises and
manufacturing unit are located
in different areas

The FBR may transfer the registration of any registered person to a jurisdiction where the place of
business or registered office or manufacturing unit is located.

Attachments to the application:

The applicant having NTN shall, using his login credentials, upload the following information and
documents:
(a) bank account certificate issued by the bank, in the name of business;
(b) registration or consumer number with gas and electricity supplier;
(c) particulars of all branches in case of multiple branches at various locations;
(d) GPS-tagged photographs of the business premises;
(e) In case of manufacturer, also the GPS-tagged photographs of machinery and industrial electricity
or gas meter installed; and
(f) Where an applicant has unsold / unused stock of tax-paid inputs on which he desires to claim the
benefit u/s 59, he shall declare such stock in a statement with his application for registration.

The system shall register the applicant on furnishing of the above documents and thereafter the applicant
or his authorized representative shall visit e-Sahulat Centre of NADRA within a month for bio-metric
verification. In case of default the registered person’s name shall be excluded from the active taxpayers’
list.
In case of manufacturer, the FBR may require post-verification. If document is missing or non- genuine
the registered person would be required to provide the same within 15 days. In case of default the
registered person’s name shall be excluded from the active taxpayers’ list.

(C) Temporary registration – rule 5A:

1. 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.

2. After temporary registration, the person is allowed to import machinery, raw materials, etc. as a
manufacturer but he will submit a post-dated cheque (equal to the difference in duties and taxes to be
availed as a manufacturer i.e. 4% value addition tax which is payable by a commercial importer)

3. If the machinery is not installed within 60 days of issuance of the temporary registration, such
temporary registration shall be disabled and the post-dated cheques submitted shall be en
cashed.

4. A person holding temporary registration shall file monthly return but shall not issue a sales tax
invoice and if such invoice is issued, no input tax credit shall be admissible against such invoice.

5. No sales tax refund shall be paid to the person during the period of temporary registration and
the amount of input tax may be carried forward to his returns for subsequent tax periods.

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The mnemonic for this concept could be "MIRAGE":
• Manufacturer (Temporary Registration)
• Import (Machinery, Raw Materials)
• Registration (Post-Dated Cheque, Return Filing)
• Always (Temporary Registration conditions)
• Guarantee (No Refund During Temporary Registration)
• Expiry (60 days deadline for machinery installation)

(D) Compulsory registration:

1. 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.

2. 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.

3. 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.

4. If it is subsequently established that a person was not liable to be registered but was wrongly
registered, 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.

(E) Change in the particulars of registration

(1) In case of a change in any particulars, the registered person shall notify the change within 14 days
and the computerized system shall issue the revised registration certificate.

Where a person is unable to file application directly in computerized system, he may submit the
application to the Commissioner RTO who shall ensure entry of the application in computerized system
within 3 days.
(2) The change of business category from non-manufacturer to a manufacturer shall be allowed after
fulfilling the requirements which are applicable for registration as a manufacturer such as verification of
machinery and confirmation of status as industrial consumer from electric and gas distribution
companies.

(F) Transfer of Registration:

The registration may be transferred from one Commissioner to another or to LTU or RTO. If a registered
person intends to shift his business activities from the jurisdiction of one Commissioner to another or
has any other valid reason, he may apply for the transfer of his registration which is subject to the
approval by the sales tax department.

The Commissioner / RTO / LTU in whose jurisdiction the registration is now transferred shall exercise
the jurisdiction over such person in the manner as if it always had such jurisdiction.

G) Option to file application with Commissioner:

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The person applying for registration, change in particulars or transfer of registration may, in exceptional
cases, file an application in the RTO. The Commissioner at RTO will then send such application to the
computerized system within 3 days.

H) Cancellation of multiple registrations:

In case of multiple registrations, the registered person shall retain only one registration and surrender
all other registrations.
The FBR may, in special cases, allow multiple registrations of manufacturing units located in different
LTU or RTO.
I)De-registration:
Every registered person
• who ceases to carry on his business or
• whose supplies become exempt or
• who sell his business
• who merges his business with another
• failed to file return for 6 tax periods
shall apply to the Commissioner for de-registration
The Commissioner may, on such application or on its own initiative, recommend to the computerized
system to cancel the registration with the later of
• 90 days from the date of application or
• the date all the dues are cleared
• 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.
• After filing the application for de-registration, the obligation to file monthly sales tax return shall
remain suspended until he is de-registered or his application is rejected.
• The Commissioner, after satisfying himself, shall direct the applicant to discharge any outstanding
liability, if any, by filing a Final Return.
• Where the Commissioner desires to conduct audit or inquiry to determine tax liability, he shall
require the applicant to provide the requisite records. On receipt of the complete requisite
records, entry to this effect shall be made in the computerized system which shall automatically
de-register the applicant on expiry of 90 days thereof.
Question 1: Ceasing Business
Scenario:
Ahmed, a registered taxpayer, decides to cease his business operations in Lahore and notifies the
Commissioner accordingly. He has cleared all dues but did not submit his application for de-
registration immediately. He continues to file his monthly sales tax returns for another two months but
then stops filing returns.
• What steps must Ahmed take for de-registration?
• When will his de-registration be effective?
• What happens if he fails to submit the final return?
Solution:
• Ahmed must submit an application for de-registration to the Commissioner, stating the
cessation of business.
• Since the Commissioner may initiate de-registration on its own or at the request of the
taxpayer, the de-registration will be processed 90 days from the date of application or when all
dues are cleared, whichever is later.
• If Ahmed does not submit his final return or provide requisite documents, the Commissioner
may require him to clear his outstanding tax liabilities, including any pending returns, before
proceeding with de-registration. De-registration will be automatic once the 90-day period
expires after the final return or outstanding tax liabilities are cleared.

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Question 2: Supplies Become Exempt
Scenario:
Khadija, a registered supplier of industrial equipment, sells her products, which were previously
subject to sales tax. Recently, due to a change in tax laws, her supplies have become exempt. She has
no other business activities.
• Can Khadija apply for de-registration?
• What is the process for her de-registration?
• What happens if she fails to submit her final return after applying for de-registration?
Solution:
• Yes, Khadija can apply for de-registration as her supplies have become exempt, and she no
longer carries on taxable business activities.
• The process involves submitting an application for de-registration to the Commissioner. The
de-registration will be effective after 90 days from the date of the application or when all dues
are cleared, whichever is later.
• If Khadija fails to submit the final return, the Commissioner will not process the de-registration.
She will need to discharge any outstanding liabilities by filing the final return and providing the
necessary records before de-registration.

Question 3: Sale of Business

Scenario:
Ali is the owner of a registered business that deals in electronics. He sells his business to another
registered taxpayer, Sarah. Ali notifies the Commissioner about the sale of the business but does not
immediately apply for de-registration. During the next month, Sarah continues to run the business
under her own registration.
• What action must Ali take for de-registration?
• When will Ali’s de-registration become effective?
• What is the impact of Ali not submitting his final return?
Solution:
• Ali must apply to the Commissioner for de-registration after selling his business to Sarah.
• The de-registration will be processed 90 days from the date of the application or once all dues
are cleared, whichever is later.
• If Ali fails to submit his final return, the Commissioner will not process his de-registration, and
any outstanding tax liabilities must be settled before the de-registration can proceed. The final
return will need to be filed before de-registration can be completed.

Question 4: Non-filing of Returns for 6 Periods

Scenario:
Zara, a registered taxpayer, has not filed her sales tax returns for the last six consecutive months,
although her business is still operational. The tax authorities have sent her several notices, but Zara
has not responded.
• What action will the Commissioner take in this case?
• What is the timeline for Zara’s de-registration?
• What will happen if Zara fails to file the final return?
Solution:
• Since Zara has failed to file her returns for six consecutive months, the Commissioner can
initiate de-registration on its own or upon Zara’s application.
• The Commissioner will process her de-registration 90 days after the application or when any
outstanding liabilities are settled, whichever is later.
• If Zara fails to file her final return, the Commissioner will not process her de-registration. Zara
must file the final return and provide the necessary records for the audit. Only after resolving
all outstanding issues will the de-registration be processed.

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 Question Mr. Moye Moye applied for de-registration on 05th March 2024. Determine the date by
which commissioner may issue order of de-registration if outstanding:
(a) Tax liability is paid on 15th May 2024;
(b) Tax liability is paid on 12th July 2024.
Solution
(a) The Commissioner may issue order of de-registration within later of following:
• 90 days from the date of application i.e. 3rd June 2024; or
• The date all outstanding liabilities are deposited by him i.e. 15th May 2024.
As 3rd June 2024 is later, the Commissioner may issue order of de-registration by 3rd June 2024.

(b) The Commissioner may issue order of de-registration within later of following:
• 90 days from the date of application i.e. 3rd June 2024; or
• The date all outstanding liabilities are deposited by him i.e. 12th July 2024.
As 12th July 2024 is later, the Commissioner may issue order of de-registration by 12th July 2024.

J) Blacklisting and suspension of registration –

Where the Commissioner / FBR has reasons to believe that a registered person is involved in tax fraud
etc., he may suspend the registration of such person by an order in writing and initiate such enquiry as
deem fit.
Procedure for blacklisting and suspension of registration:

SUSPENSION
1. Where a commissioner is satisfied that a registered person has issued fake invoices, evaded tax or
committed tax fraud, registration of such person may be suspended through the system, without
prior notice, pending further inquiry.
The basis for suspension may inter alia include:
a) Non-availability of the registered person at the given address;
b) Refusal to allow access to business premises or refusal to furnish records to an authorized
Inland Revenue Officer;
c) Abnormal tax profile, such as taking excessive input tax adjustments, continuous carry-
forwards, or sudden increase in turnover;
d) Making substantial purchases from or making supplies to other blacklisted/suspended
persons;
e) Non-filing of sales tax returns;
f) On recommendation of a commissioner of any other jurisdiction;
g) Any other reason to be specified by the Commissioner.

2. The written suspension order shall indicate the reason for suspension and shall be endorsed to
the registered person and all other concerned departments.

3. A registered person who does not file sales tax return for six consecutive months shall be
suspended by the system without any notice.

4. No input tax adjustment/refund shall be admissible to the suspended person during the period
of suspension. Similarly, no input tax adjustment shall be allowed to the buyers on the basis of
invoices issued by such suspended person (whether issued prior to or after such suspension),
during the period of suspension.

5. The Commissioner shall, within 7 days of issuance of suspension order, issue a show cause notice
to afford an opportunity of hearing within 15 days of the issuance of such notice clearly indicating

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 that he will be blacklisted in case:

a)there is no response to the notice

b)has not provided the required record
c)has not allowed access to his business record/premises
d)any other reason specified by the Commissioner.

6. In case show cause notice is not issued within 7 days of the suspension order, the said order shall
become void ab initio.

7. In case of non-availability of the suspended person at the given address, the notice may be affixed
on the main notice board of the LTU/RTO.

8. On receipt of the reply to the notice, if the Commissioner is satisfied, he may order for revoking
of suspension of the registered person.

BLACKLISTING
9. In case the offence is confirmed, the Commissioner shall issue an appealable order for
blacklisting and shall proceed to take legal and penal action.

10. The order of blacklisting shall contain:

• reasons for blacklisting;
• time period for which any refund or input tax shall be inadmissible claimed by blacklisted
person or by his buyers on the basis of invoices issued by him;
• any recovery to be paid or penalties to be imposed.

11. The order of blacklisting shall be issued within 90 days of the issuance of the notice of hearing.
In case, the order of blacklisting is not issued within 90 days the suspension of registered person shall
become void ab initio.

12. Copies of the order shall be endorsed to the registered person and all the concerned
departments. Copies of the order shall also be circulated, along with a computer system- generated list
of invoices issued by the blacklisted persons, to all Officers of Inland Revenue to enable them to
disallow the input tax claim on the basis of invoices issued by the said blacklisted persons.

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Summary of Process

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 Chapter
21
Sales tax records & misc

1. Record keeping and Return filing requirements

a) Records – 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 labor bills, cash book, 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. Electronic version of records;
8. Such other records as may be specified by the Board.

The above record shall be retained for 6 years – Section 24.

• Provided that the persons paying retail, tax shall keep such record as may be specified by the
Board.
• The Board may also require a registered person or class of registered persons to declare and use
only as many numbers of business bank accounts as may be specified by the Board in such
notification to make or receive payments on account of purchase and sale transactions for the
purpose of the Sales Tax Act, 1990 or rules made thereunder and to make payment of due tax
from such accounts only.
• The Board may specify to keep such other records for the sales tax law purposes.
• The Board may specify to use such electronic fiscal cash registers as are approved by the Board.
• The registered person shall keep the aforesaid record at his business premises or registered office
in English or Urdu language
• The registered persons, whose accounts are subject to audit under the Companies Act, 2017, shall
be required to submit a copy of the annual audited accounts, along with a certificate by the
auditors certifying the payment of due tax by the registered person

b) Return filing requirements

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 on the prescribed payment challan or through electronic payment
system devised for this purpose.

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The date of payment in case of payment through cash or cheque shall be treated as the date on which
the payment is received by the bank. In case of payment through pay order or bank draft, date on which
the pay order or bank draft is tendered at the bank counter.

c) 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
If a registered person’s claim reduces his sales tax liability such as:
- Input tax on his purchases; or
- Credit Note issued by him in respect of sales return or increase in purchase value on account of
any mistake or otherwise in purchase invoice earlier received
And a discrepancy was found by the automated system of the FBR then the said adjustment would be
allowed to the registered person on provisional basis and he would be given an opportunity to contact
and persuade the other party to resolve the discrepancy by declaring output tax.
If the discrepancy is resolved then the objection raised by the automated system shall stand settled and
the registered person shall be informed accordingly.
If the discrepancy is not resolved by the 10th day of the next month, then the adjustment earlier allowed
on provisional basis shall be adjusted or recovered from the registered person.

Quantitative details – rule 14

Registered manufacturers of the specified goods are required to furnish the details of quantities of goods manufactured
and supplied along with the monthly returns. The examples of specified goods include sugar, cigarettes, paper, cement,
refrigerators, ACs, TV, vehicles, ice cream etc.

d) Annual Return or Special Return

FBR may require a person to file annual statement in the prescribed form.
Every company registered for sales tax shall file annual sales tax return for a financial year by 30th
September of the next financial year.

e) Extension of time for filing of return

For the purpose of extension of time for filing of return, the registered person is required to file an
application to the Commissioner and the Commissioner may grant an extension of time up to 15 days if
he is satisfied that the applicant is unable to furnish the return by the due date because of –
(i)Absence from Pakistan;
(ii)Sickness or other misadventure; or
(iii)Any other reasonable cause.
Under exceptional circumstances a longer time extension may also be granted by the Commissioner.
Refusal of extension by the Commissioner
If a commissioner refuses to extend the time for filing of return, then the registered person may file an
application to the Chief Commissioner who may allow such extension of time for 15 days and a longer
time under exceptional circumstances.

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f) 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.

When filing a revised return, the following amounts will be paid depending upon the time it is furnished
Time of Furnishing revised return Amount required to be paid
Before receipt of notice of audit Amount of short tax paid/ evaded + default
surcharge
During audit and before receipt of show cause Amount of tax pointed by officer + 25% of
notice penalty
After issuance of show cause notice Amount of Tax evaded + Default Surcharge +
100% penalty [If this amount is paid show
cause notice shall stand abated]

g) Final return:
Before de-registration, if any tax liability is required to be paid, it would be paid through a final return.

Particulars of Return:
i. The return shall indicate; Sales tax registration number (STRN), name and address of the supplier.
ii. name, address and registration, number of the recipient and NIC or NTN of the unregistered person,
as the case may be, excluding supplies made by a retailer where the transaction value inclusive of sales
tax amount does not exceed rupees one hundred thousand, if sale is being made to an ordinary
consumer
iii. Explanation—For the purpose of this clause, ordinary consumer means a person who is buying goods for his own
consumption and not for the purpose of resale or processing: Provided that the condition of NIC or NTN shall be
effective from 1st August, 2019;

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iv. Date of issue of invoice;
v. description, including count, denier and construction in case of textile yarn and fabric and quantity of
goods;
vi. Tax credit carried forward from previous period.
vii. Value of supplies
viii. Output tax due on supplies as under:
a) Local taxable supplies
b) Exempted supplies
c) Zero rated supplies
ix. Value of purchases;
x. Input tax paid on purchases as under:
a) Local taxed goods
b) Imported taxed goods
c) Exempted purchases
d) Zero rated purchases
e) other purchases
xi. Arrears payable
xii. Amount payable / refundable.

• The registered person shall deposit in the banks, the amount of sales tax indicated as “Sales Tax
Payable” in the return at the time of filing of return.
• In case no amount of sales tax is payable by the registered person, he shall file “Nil” return
without depositing any amount.
• If it is subsequently proved that CNIC provided was by the purchaser was not correct, liability of
tax or penalty shall not arise against the seller, in case of sale made in good faith.

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2. Assessment & Audit
a) Audit – Section 25
1. 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.
2. However, an officer of Inland Revenue may also conduct an audit, if the same were earlier
conducted by the office of the Auditor General of Pakistan.
3. The Commissioner may conduct audit proceedings electronically through video link.
4. 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.
5. 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.
1. ‫کمشنر کے ذریعے آڈٹ‬: ‫کمشنر کے پاس یہ اختیار ہے کہ وہ آڈٹ کرائے یا اگر اس کے پاس کافی ثبوت ہوں کہ رجسٹرڈ‬
‫شخص ٹیکس فراڈ میں ملوث ہے تو تحقیقات کرے۔‬
2. ‫ان لینڈ ریونیو افسر کا آڈٹ‬: ‫ تو ان لینڈ ریونیو کا‬،‫اگر آڈٹ پہلے پاکستان کے آڈیٹر جنرل کے دفتر کے ذریعے کرایا گیا ہو‬
‫افسر بھی آڈٹ کر سکتا ہے۔‬
3. ‫کمشنر کا الیکٹرانک آڈٹ‬: ‫کمشنر آڈٹ کے عمل کو ویڈیو لنک کے ذریعے بھی کر سکتا ہے۔‬
4. ‫اسسٹنٹ کمشنر (آڈٹ) کے نوٹس‬: ‫اگر اسسٹنٹ کمشنر (آڈٹ) کو آڈٹ کے دوران کسی قسم کی خامی یا نقص ملے تو وہ آڈٹ‬
‫ دن کے اندر جمع کرانے ہوں گے۔ اس کے‬15 ‫کی مشاہدات جاری کرے گا۔ رجسٹرڈ شخص کو ان مشاہدات پر اپنے خیاالت‬
‫ اگر کوئی ہو۔‬،‫بعد اسسٹنٹ کمشنر ایک آڈٹ رپورٹ جاری کرے گا جس میں سیلز ٹیکس کا مطالبہ بتایا جائے گا‬
5. ‫سیلز ٹیکس کی ادائیگی اور جرمانہ‬: ‫اگر رجسٹرڈ شخص آڈٹ نوٹس ملنے سے پہلے خود سے ٹیکس کی کمی یا فراڈ کی‬
‫ادائیگی کر دیتا ہے تو اس پر کوئی جرمانہ نہیں لگے گا۔ اگر آڈٹ کے دوران لیکن شوکاز نوٹس (آڈٹ مشاہدات) کے جاری‬
‫ جرمانہ لگے گا۔ اور اگر شوکاز نوٹس جاری ہو چکا ہو تو مکمل جرمانہ لگے‬%25 ‫ہونے سے پہلے ادائیگی کی جائے تو‬
‫گا۔‬

b) Assessment of tax and recovery of tax not levied or short-levied or erroneously refunded. -
Section 11
An Officer Inland Revenue shall make an assessment of tax including default surcharge and penalty
where:
- A person fails to file a return of sales tax; or
- A person pays tax less than the tax actually payable due to miscalculation; or
- A person claimed incorrect input tax or refund; or
- The tax due on supplies made by a person has not been paid or short paid; or
- Any tax has not been levied or short levied by reason of any inadvertence, error or misconstruction
or deliberately.
For the purpose of audit, a show cause notice may be given within a period of 5 years specifying the
ground of such assessment and an opportunity of being heard shall be provided.

Time limit for said assessment is within 120 days of issuance of show cause notice (may be extended to
a further 90 days for reasons to be recorded in writing).

However, any period during which the proceedings are adjourned for any reason including stay order
shall be excluded from the said time limit for completion of assessment.

Where a tax has not been levied, the tax shall be recovered as tax fraction of the value of supply.

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‫‪Where a person, required to file a return, files the return after the due date and pays the amount of tax‬‬
‫‪along with default surcharge and penalty, the show cause notice and the order of assessment shall‬‬
‫‪abate.‬‬
‫‪However, where a registered person has not paid tax payable with return or short paid then tax payable‬‬
‫‪shall be recovered without notice by:‬‬
‫‪-Attachment of his business bank account; and‬‬
‫‪-stopping removal of any goods from business premises‬‬
‫‪However, show cause notice is required for imposition of any penalty.‬‬

‫جب کوئی شخص درج ذیل میں سے کسی بھی عمل کا مرتکب ہوتا ہے تو ان لینڈ ‪:‬ان لینڈ ریونیو افسر کا ٹیکس کا تعین‬
‫‪:‬ریونیو افسر اس کا ٹیکس تعین کرتا ہے‪ ،‬جس میں ڈیفالٹ سرچارج اور جرمانہ بھی شامل کیا جا سکتا ہے‬

‫اگر کسی شخص نے سیلز ٹیکس کی ریٹرن جمع نہیں کرائی۔ ‪:‬ٹیکس ریٹرن نہ جمع کروانا ‪1.‬‬
‫ایک دکان دار نے سال بھر کا سیلز ٹیکس ریٹرن نہیں جمع کروایا‪ ،‬تو ان لینڈ ریونیو افسر اس کا ٹیکس اور جرمانہ تعین ‪:‬مثال‬
‫کرے گا۔‬

‫اگر کسی شخص نے غلط حساب کتاب کی وجہ سے ٹیکس کم ادا کیا۔ ‪:‬کم ٹیکس ادا کرنا ‪2.‬‬
‫ایک کاروباری شخص نے اپنے کاروبار کی سیلز کا حساب غلط لگایا اور کم ٹیکس ادا کیا‪ ،‬تو ان لینڈ ریونیو افسر اس ‪:‬مثال‬
‫پر جرمانہ لگا سکتا ہے۔‬
‫دعوی کیا۔ ‪:‬غلط انپٹ ٹیکس یا ریفنڈ کا دعوی ‪3.‬‬ ‫ٰ‬ ‫اگر کسی شخص نے غلط انپٹ ٹیکس یا ریفنڈ کا‬
‫دعوی کیا‪ ،‬جس کے نتیجے میں اس کو زیادہ ریفنڈ مل گیا۔ ‪:‬مثال‬ ‫ٰ‬ ‫ایک کاروبار نے اپنی خریداری پر غلط انپٹ ٹیکس کا‬
‫اگر کوئی شخص اپنے فراہم کردہ مال پر ٹیکس نہیں ادا کرتا یا کم ادا کرتا ‪:‬سیلز کی ادائیگی نہ کرنا یا کم ادا کرنا ‪4.‬‬
‫ہے۔‬
‫ایک کمپنی نے اپنی مصنوعات کی فروخت پر ٹیکس کم ادا کیا یا ادا نہیں کیا۔ ‪:‬مثال‬
‫اگر کسی وجہ سے غلطی یا نادانی کی وجہ سے ٹیکس نہیں لگایا گیا۔ ‪:‬غلطی یا نادانی کی وجہ سے ٹیکس نہ لگانا ‪5.‬‬
‫ایک ٹیکس افسر کی غلطی سے کسی کاروبار پر ٹیکس نہیں لگایا گیا‪ ،‬یا اگر یہ جان بوجھ کر کیا گیا ہو۔ ‪:‬مثال‬
‫آڈٹ کا نوٹس ‪ 5‬سال کے اندر جاری کیا جا سکتا ہے‪ ،‬جس میں اس بات کا ذکر کیا جائے گا کہ یہ ٹیکس کا ‪:‬آڈٹ کا نوٹس‬
‫تعین کس بنیاد پر کیا گیا ہے‪ ،‬اور اس شخص کو اپنی بات سنانے کا موقع بھی دیا جائے گا۔‬
‫آڈٹ کا نوٹس جاری ہونے کے بعد ٹیکس کا تعین کرنے کی آخری تاریخ ‪ 120‬دن ہے‪ ،‬اور اگر ضروری ہو تو یہ ‪:‬ٹائم لیمیٹ‬
‫‪ 90‬دن مزید بڑھائی جا سکتی ہے۔‬
‫اگر کسی شخص نے ریٹرن کے ساتھ ٹیکس ادا نہیں کیا یا کم ادا کیا تو ٹیکس کو بغیر نوٹس کے وصول ‪:‬ادائیگی کے طریقے‬
‫‪:‬کیا جا سکتا ہے‪ ،‬جیسے کہ‬
‫اگر کسی نے کم ٹیکس ادا کیا‪ ،‬تو اس کے کاروباری بینک اکاؤنٹ کو مہر ‪:‬کاروباری بینک اکاؤنٹ کی مہر بندی •‬
‫بند کیا جا سکتا ہے۔‬
‫اس کے مال کی ترسیل روکی جا سکتی ہے۔ ‪:‬مال کا نکالنا روکنا •‬
‫فرض کریں ایک تاجر نے اپنی دکان سے مال بیچا اور سیلز ٹیکس ادا نہیں کیا‪ ،‬تو ان لینڈ ریونیو افسر اس کا بینک ‪:‬مثال‬
‫اکاؤنٹ ضبط کر سکتا ہے یا مال کی ترسیل روک سکتا ہے۔‬

‫اگر کسی شخص نے اپنی ٹیکس کی ادائیگی بعد میں کردی اور ڈیفالٹ سرچارج اور جرمانہ بھی ادا کیا تو ‪:‬نوٹس کا معاملہ‬
‫اس کے خالف آڈٹ کا نوٹس اور ٹیکس کا تعین منسوخ کر دیا جائے گا۔‬
‫اگر ایک تاجر نے دیر سے ریٹرن فائل کی اور ساتھ میں ٹیکس اور جرمانہ بھی ادا کیا تو اس کے خالف مزید کارروائی ‪:‬یعنی‬
‫نہیں کی جائے گی‪ ،‬لیکن اگر وہ کم ٹیکس ادا کرتا ہے تو اسے نوٹس بھیجا جائے گا۔‬

‫‪Assessment giving effect to an order:‬‬

‫‪Where an assessment order is required to be issued on the instruction of an appellate authority, the‬‬
‫‪Commissioner or an officer of Inland Revenue empowered in this behalf shall issue the order within one‬‬
‫‪year from the end of the financial year in which the appellate order was served.‬‬

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 ‫( جب کوئی اپیلیٹ اتھارٹی (یعنی ٹیکس اپیل کا فیصلہ کرنے واال ادارہ) کسی فیصلے کی بنیاد پر ٹیکس کی تشخیص‬assessment)
‫ اسے اپیلیٹ اتھارٹی کے فیصلے کی‬،‫ تو کمشنر یا ان لینڈ ریونیو کا افسر جسے اس کے لیے اختیار حاصل ہو‬،‫کرنے کا حکم دیتی ہے‬
‫خدمت کے بعد ایک سال کے اندر اندر تشخیص کا آرڈر جاری کرنا ہوتا ہے۔‬
‫مثال‬:
‫فرض کریں ایک کاروباری شخص نے اپنے ٹیکس کے معاملے میں اپیلیٹ اتھارٹی کے سامنے اپیل کی اور وہاں پر فیصلہ آیا کہ اس‬
‫کی ٹیکس کی تشخیص دوبارہ کی جائے۔‬
1. ‫موجودہ صورت حال‬: ‫ اور اس فیصلے کی‬،‫اپیلیٹ اتھارٹی نے فیصلہ کیا کہ ٹیکس کی تشخیص میں کچھ غلطی ہوئی تھی‬
‫بنیاد پر کمشنر یا ان لینڈ ریونیو کے افسر کو ٹیکس کا دوبارہ حساب لگانا ہوگا۔‬
2. ‫تشخیص کا عمل‬: ‫کمشنر یا افسر کو اپیلیٹ اتھارٹی کے فیصلے کے بعد ایک سال کے اندر اندر ٹیکس کی نئی تشخیص کا‬
‫آرڈر جاری کرنا ہے۔‬
‫مثال کے طور پر‬:
• ‫ جون تک‬30 ‫ کے‬2024 ‫ تو کمشنر یا ان لینڈ ریونیو افسر کو‬،‫ کے دسمبر میں اپنا فیصلہ سنایا‬2023 ‫اگر اپیلیٹ اتھارٹی نے‬
‫اس فیصلے کے مطابق ٹیکس کی تشخیص کا آرڈر جاری کرنا ہوگا۔‬
‫ ایک سال کی مدت اپیل کے فیصلے کے بعد کمشنر کو ٹیکس کی تشخیص کا آرڈر جاری کرنے کے لیے دی جاتی ہے۔‬،‫اس طرح‬

Powers of tax authorities to modify orders:

Where a question of law has been decided by the Appellate Tribunal or High Court in the case of a
registered person, the Commissioner may follow the said decision including in respect of an identical
situation in the subsequent years of the said registered person even if the tax department has filed an
appeal against such decision.

If the higher appellate authority reverses such decision of the Appellate Tribunal or High Court, the
Commissioner is empowered to modify the assessment within 1 year from the date of receipt of the
decision of the higher appellate authority and in this case normal time limit for amendment shall not
apply.

c)Access to Records and Documents – Section 25

Officer Inland Revenue is authorized to have access to the records and documents maintained under the
Sales Tax Act or under any other law and use of such machine (e.g. computer) on which data related to
sales tax is kept.
d) Drawing of Samples – Section 25A
An authorized officer of Inland Revenue, if consider it necessary, may take a sample of any goods or raw
materials, for the purpose of:
(i) determining the liability to sales tax of a registered person; or

(ii) for the purpose of establishing value of goods; or

(iii) for any other reason.

➢ The sample drawn shall be a minimum quantity of goods or raw materials sufficient to enable a
proper examination or analysis to be made.
➢ At the time of taking the sample the person in possession of the goods shall be informed and
given the opportunity to sign the representative samples, so drawn, and take
➢ corresponding sample for his own record.
➢ Any sample taken as above shall be taken against a proper receipt a copy each of which shall be
kept in the record by the registered person and the large Taxpayers unit or Regional Tax Officer,
as the case may be.

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Recovery of short paid amounts without notice
Where a registered person pays the amount of tax less than the tax due as indicated in his return, the
short paid amount of tax along -with default surcharge shall be recovered from such person by stopping
removal of any goods from his business premises and through attachment of his business bank
accounts. Any of these actions may be taken without giving
him a show cause notice and without prejudice to any other action prescribed under section 48 of this
Act or the rules made there under. Provided that no penalty under section 33 of this Act shall be
imposed unless a show cause notice
is given to such person.
❑ Provisions of this section shall apply notwithstanding any of the provisions of this Act

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