Sales Tax Registration and Payment in Pakistan

WHAT PRODUCTS/SERVICES ARE SUBJECT TO SALES TAX IN PAKISTAN?

Sales Tax in Pakistan is levied at various stages of economic activity at the rate of 0 upto 21 per cent by the government of Pakistan on the following items:

  • all goods imported into Pakistan, payable by the importers;
  • all supplies made in Pakistan by a registered person in the course of furtherance of any business carried on by him;

There ia an in-built system of input tax adjustment and a registered person can 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 exceed 16% of the total sales price of the supplies;

HISTORY SALES TAX LAW AND LEGISLATION AND ITS GROWTH IN PAKISTAN?

Sales Tax was a provincial tax at the time of partition of India-Pakistan in 1947. It was being administered in the provinces of Punjab & Sindh as a provincial levy. Sales tax was declared a federal subject by the newly formed government of pakistan 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. These days VAT is highly advocated by the World Bank to be implemented in Pakistan in totality, although resistant government of pakistan may have to give up and apply the same in the next federal budget.

Liability to Sales Tax

 Following sectors are required to get registration for sales tax and charge sales tax on their supplies/ services:

  • Manufacturing
  •  Import
  •  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.

REGISTRATION

 Every person in sectors mentioned above, who makes a taxable supply in Pakistan is required to be registered under the Sales Tax Act, 1990. 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.

 RETURNS 

 As per law each registered person must file a return by the specified date, regarding the sales made. All registered persons are required to file returns electronically. There are some sectors which are required to file returns on quarterly (tri-monthly) basis while some may have to file monthly.

 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 specified period.

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 can be refunded after the procedure specified by the federal board of revenue is followed.

ADDITIONAL TAX

  If a sales tax 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 tax at rate of One and half percent of tax due or the part thereof per moth.However, in case of tax fraud, the rate of may be increased more. 

ARREARS

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 adjudication 

If you would like to become a sales tax payer or would like your compliance issues to be handled in the most expert manner, do let us know and we will be more than pleased to assist you from tax registration to tax planning to Appelate Proceedings, you can surely depend on Masood and Masood .