Sales Tax Law in Pakistan
Sales Tax 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 through the enactment of General Sales Tax Act, 1948 and in 1952, this levy was transferred permanently to the Central Government. Sales tax was levied at the standard rate of 6 pies per rupee at every stage whenever a sale was effected. The trading community protested against this system, and this resulted in the enactment of Sales Tax Act 1951.
A system of licensed manufacturers & wholesalers was instituted 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 the payment of Sales Tax. Later on Sales Tax became chargeable on locally produced & imported goods at the time of their sales & import, respectively. The sales tax, was collected under the Finance Ordinance, 1956, on goods which were chargeable to Central Excise Duty, as if it were a duty of Central Excise. In April 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 Central Excise Department.
In the late eighties the government decided to replace Sales Tax with the Value Added Tax in the country as a part of its structural adjustment program which was undertaken to correct anomalies & distortions both in our tax & non-tax regimes. Accordingly new enactment titled Sales Tax Act 1990 replaced Sales Tax Act 1951 with effect from 1-11-1990.
Liability to Sales Tax
Following sectors are required to get registration for sales tax and charge sales tax on their supplies/ services:
Distribution, Wholesale & Retail stage.
Previously it was being charged at the manufacturing & import stage, and its scope has been extended now to remaining sectors.
Sales Tax is chargeable on all locally produced and imported goods except computer software, poultry feeds, medicines and unprocessed agricultural produce of Pakistan and other goods specified in Sixth Schedule to The Sales Tax Act, 1990.
Every person in sectors mentioned above, who makes a taxable supply in Pakistan is required to be registered under the Sales Tax Act. However, manufacturers having taxable turnover below five million rupees and also utility bill below Rs. Seven lac during the last twelve months are exempted from registration and payment of sales tax. Similar exemption is also available to retailers having total turnover below Rs. five million in the last twelve months.
The rate for sales tax is 16% of value of supplies. However, there are some items which are chargeable to sales tax at 18.5% or 21% of value of supplies (see SRO 644(I)/2007 as amended by SRO 537(I)/2008 dated 11th June 2008)
The Registration Form(s) are submitted to the Central Registration Office, FBR, or Sales Tax Collectorates/ RTOs for the allotment of a Registration Number by the persons liable to be registered under the Sales Tax Act. The taxpayer is then issued a Certificate of Registration.
SALES TAX REGISTRATION PROCEDURE
The registration procedure is provided in Chapter I of the Sales Tax Rules, 2006, issued vide SRO 555(I)/2006. For this purpose, the prospective taxpayers have been given the option to apply for registration directly to the Central Registration Office (CRO) at Federal Board of Revenue. This will ensure expeditious registration process by eliminating the step of filing application in the Local Registration Office (LRO) or the Collectorate.
Any prospective taxpayer can apply on a simple registration form STR-1 to local registration office. The registration forms are available at all facilitation counters of local Registration Offices and also given in the SRO mentioned above. In order to ensure that the applicants can monitor the process, the applications are requested to be sent through mail with acknowledgment due. Similarly, the same procedure shall be followed for deregistration by applying on form STR-3. When there is change in particulars of registration, the taxpayer can apply on STR-1. In case of change in particulars, only those columns will be filled in which require change. The taxpayers also have the option of filing application in the LRO (Collectorate), if they find it convenient.
The previous requirements of furnishing supporting documents have been done away with. The Central Registration having online access to database of NTN as well as to that of NADRA and shall verify the particulars declared in the application with database. On verification, it shall generate and issue registration certificate to the applicant. The system has been designed in such a way that it can correct any minor mistakes automatically without bothering the taxpayers.
For further details, Chapter I of the Sales Tax Special Procedures Rules, 2006, i.e. SRO 555(I)/2006 dated 5.6.2006, as available on the website, can be seen.
As per law each registered person must file a return by the 15th of each month regarding the sales made in the last month.
All registered persons are required to file returns electronically and in such cases the payment is to be made by the 15th and return can be submitted on FBR’s e-portal by 18th.
Detailed procedure in this respect is given in Sales Tax General Order no. 04 of 2007.
There are some sectors which are required to file returns on quarterly (tri-monthly) basis e.g. retailers including dealers of specified electric goods and CNG dealers.
MAINTENANCE OF RECORDS
All registered persons are required to maintain records at their business premises of the goods purchased and supplied made by them. All the records are required to be kept for a period of 5 years.
REFUNDS OF SALES TAX
In cases where the Input Tax exceeds the Output Tax due from the registered person in respect of a tax period because of exports or other zero-rated supplies, the excess amount of input is refunded back to the taxpayer within 45 days. In all other cases of excess input tax, the Board can specify the procedure for refund.
If a registered person does not pay the tax within the specified time or claims a tax credit or refund which is not admissible to him, or incorrectly applies the rate of zero percent to the supplies made by him, he has to pay the additional tad at the following rates:
One and half percent of tax due or the part thereof per moth;
However, in case of tax fraud, the rate of additional tax shall be two percent per month.
The work regarding Arrears gets initiated in the following cases:
Late or no submission of the Returns
Amount paid is less than the tax amount payable
A demand raised after an audit/ scrutiny is upheld after ad
Sales Tax Registration Procedure in Pakistan
The Federal Board of Revenue, Pakistan (FBR) has simplified sales tax registration and deregistration procedure. For this purpose, a prospective taxpayer has been given the option to apply for registration directly to the Central Registration Office (CRO) at Federal Board of Revenue. This will ensure swift registration process by eliminating the step of filing application in the Local Registration Office (LRO) or the Collectorate. Any prospective taxpayer can apply on a registration form to the local registration office. Previous requirements of furnishing supporting documents have been done away with.
• Sales Tax is levied at various stages of economic activity at the rate of 15 per
• All goods imported into Pakistan to be paid by the importers.
• All supplies made in Pakistan by a registered person in the course of furtherance of any business approved on by him.
• There is an in-built system of input tax adjustment and a registered person be capable of make adjustment of tax paid at earlier stages against the tax payable by him on his supplies. Thus the tax paid at any stage does not go above 15% of the total sales price of the supplies.