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Scope of Sales Tax
According to the Sales Tax Act 1990, Sales Tax is charged, at 15% of the
value of taxable supplies made in Pakistan by a registered person, and goods
imported into Pakistan. A number of items are exempt from sales tax under
section 13 of the Act and these are listed in the Sixth Schedule to the
Act. The goods exported from Pakistan are zero-rated under section 4 of
the Act.
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Some Important Definitions
“Input Tax” in relation to a registered person means the tax levied
on the supply of goods received by that person, or imported by that person
or levied by the Azad Jammu & Kashmir Government on the supply of goods
received by that person.
“Manufacturer or Producer” is a person engaged
in the production of manufacture of goods, and includes any person who assembles,
mixes, cuts, dilutes, bottles, packages, repackages or prepare goods by
any other manner. However, under the Finance Ordinance 2000, through an
amendment in section 2(17) of the Act, for the purpose of refund of Sales
Tax, only such person shall be treated as manufacturer-cum-exporter who
owns or has his own manufacturing facility to manufacture or produce the
goods exported or to be exported.
“Output Tax” in relation to any registered
person means the Sales Tax charged in respect of a supply of goods made
by that person.
“Taxable goods” means all goods other than those exempted
under section 13 of the Act.
“Tax Invoice” means a serially numbered
tax invoice issued by a registered person for making a taxable supply of
goods, containing all relevant particulars of the supplier, the receiver,
description, quantity, value of the goods and the amount of Sales Tax.
“Taxable Supply” means a supply of taxable goods made in Pakistan other
than those exempted under section 13, but includes supply of goods chargeable
to tax @ zero per cent under section 4.
“Due date” in relation to furnishing
of monthly Sales Tax return, means the 15th day of the month following the
end of the tax period (currently one month).
“Exempt supply” means
a supply which is exempt from Sales Tax undersection 13.
“Value of
supply” means the money value of the supply, including Federal and Provincial
duties and taxes, but excluding the amount of Sales Tax. In the case of
vendors providing a “service”, for example, printing, textile processing,
corrugation, “value” is the money consideration only for the service or
conversion charges. However, for processing of non-taxable raw materials,
the value of processed goods is the open market price of finished goods
and not the processing charges alone.
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Requirement of Registration
Under section 14 of the Act, the following persons making taxable supplies
in Pakistan (including zero-rated supplies) are required to be registered.
- A manufacturer with annual turnover from taxable supplies, in any
period during the last 12 months ending any tax period, exceeds Rs.
2.5 million.
- A retailer whose value of supplies, during the last 12 months ending
any tax period, exceeds Rs. 5 million.
- An importer.
- A wholesaler (including dealer) and distributor.
Both manufacturer-cum-exporters and commercial exporters should get
themselves registered to be able to claim Sales Tax refunds on exports
which are zero-rated.
Importers of taxable plant and machinery who intend to make taxable
supplies of goods produced with such plant and machinery and wish to
claim credit or refund of tax paid on such plant and machinery are also
required to be registered.
In para 3.1.7 of Chapter 3, the requirement of Sales Tax Registration
for the purpose of registration as importer or exporter is discussed.
In connection with compulsory registration of indenters for Sales Tax,
CBR has clarified that those indenters who declare to the EPB that they
are indenters exclusively and do not import any goods, would not require
prior Sales Tax Registration for the purpose of their import registration.
Similarly, importers of Sales Tax exempt goods, who declare to the EPB
that they do not and will not import any sales taxable goods, would
also not require prior Sales Tax Registration for their import registration
with EPB.
For registration, an application in the prescribed form (App:12.1) is
required to be made to the Sales Tax Collectorate concerned, before
making taxable supplies.
A registered person engaged in taxable activity through distinct different
branches, divisions, or manufacturing units, located in different Sales
Tax Collectorates, have to make separate applications for registration
in different Collectorates.
A person who makes or intends to make taxable supplies, but is not required
to be registered, can also apply for registration, but once registered,
is not deregistered before expiry of two years from the date of registration.
A registered person who ceases to carry on his business or whose supply
becomes exempt from Sales Tax may apply for cancellation of his registration.
A person who is required to be registered, but does not apply for registration,
may be registered by the Collector Sales Tax compulsorily from the date
he became liable for registration, after issuing a notice to such person.
According to CBR instructionsdt 25th June 1999 to all Collectors of
Sales Tax, all units with shuttleless looms, air-jet looms, water-jet
looms and broad looms for chenille, velvet, bed sheets and tapestry
have to be registered for Sales Tax upto30th June 1999. Similarly, effective
1st July 1999, all textile processing units have to work under the normal
invoice-based GST system in VAT mode and to file prescribed tax returns.
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Book Keeping and Records
A registered person is required to maintain, and retain for 5 years,
the following minimum records:-
- Supplies made with description, quantity, value, name/address of
receiver and the tax charged.
- Goods purchased showing description, quantity, value, name/address
and registration number of supplier and the tax paid.
- Zero-rated and exempt supplies.
- Invoices, credit/debit notes bank statements, inventory records,
utility bills, salary/labour bills, rent agreements, sale/purchase
agreements and lease agreements
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Drawing of Samples
The department may take a sample of any goods or raw materials for the purpose
of determining whether liable to Sales Tax or establishing their value,
to enable a proper examination or analysis.
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Sales Tax Returns
A registered person has to furnish by the due date a return in the prescribed
form(App:12.2), to a designated bank, showing purchases and supplies made
during a tax period, and the tax due and paid. The return is a Sales Tax
Return-cum-Payment Challan. Where the input tax exceeds the output tax,
the difference is claimed as refund of Sales Tax through the same return.
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Tax Credit Not Allowed
Under section 8 of the Act, a registered person is not entitled to
claim input tax paid on goods used for any purpose other than for taxable
supplies. SRO-578(I)/98 dt 12th June 1998, effective from 1st July 1998,
notifies the following goods, acquired otherwise than as stock in trade,
in respect of which input tax can not be claimed:-
- Vehicles falling in Chapter 87 of the First Schedule to the Customs
Act, 1969 (IV 1969).
- Building materials.
- Office equipment (excluding electronic fiscal cash registers), furniture,
fixtures and furnishings.
- Electrical and gas appliances.
- Telecommunication equipments.
- Generators and generating sets, excluding those of 250 KVA or above
acquired by a registered manufacturer for use in manufacture of taxable
supplies.
- Wires and cables and ordinary electrical fittings.
- Crockery, cutlery and utensils etc.
- Supply of food, beverages, garments, fabrics, etc and consumption
on entertainments.
- Gifts and give-aways.
- P.O.L. products other than furnace oil, lubricants and greases.
(CBR has clarified that the spares, lubricants for machinery producing
taxable goods and textile printing screens producing taxable textile
goods are admissible for input tax credit.)
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Sales Tax Refunds
Exports are zero-rated for Sales Tax. Any input tax paid at any stage
in the course of production for exports, is refundable to the exporters
through the monthly Sales Tax Return (see para 12.6). The Sales Tax Refund
Rules 2000 are notified as SRO-417(I)/2000 dt 20th June 2000 (App:12.3),
as amended by SRO-611(I)/2000 (incorporated in App:12.3). These rules
apply to registered manufacturer-cum-exporters and commercial exporters
who desire to zero rate all or part of their supplies, under section 4
of the Act. Refund can also be claimed in respect of investments on acquisition
of plant and machinery, its components and spares that are used for producing
taxable supplies. (Second proviso under section 10(1) of the Act).
Monthly sales tax return filed by a claimant, through the designated bank,
is treated as a refund claim.
The claimant has to forward to the officer in charge in the Sales Tax
Collectorate a legible photocopy of the bank-receipted return along with
requisite supportive documents. The required documents are listed in para
9 of SRO-417/2000 (App: 12.3).
The processing officer carries out examination and scrutiny of the refund
claim and, if he is satisfied, submits a comprehensive refund examination
report within 7 days of the receipt of supportive documents to the auditor
who has to give his report within the next 3 days. In exceptional circumstances,
the claim may be subjected to further scrutiny or verification in terms
of Rule 5(3) of SRO-417/2000.
If the claim is found admissible, it is sanctioned for payment by the
treasury officer after adjustment of any dues outstanding against the
claimant. The cheque is issued only through courier service or urgent
mail service.
Refund to a commercial exporter is made to the full extent of input tax
in respect of the goods actually exported, within one month of the submission
of supportive documents.
In case of manufacturer-cum-exporters, refund of input tax in respect
of goods actually exported, including input stocks in balance, is made
in the following manner:-
- 50% within one month,
- Remaining 50% after verification of deposit of tax, and scrutiny of
records and verification of stocks, if not already done under Rule 5(3).
However, it is provided that if such verification is not completed within
60 days, the remaining 50% refund is paid and the verification work
is completed afterwards, but the time limit does not apply to cases
subjected to scrutiny under Rule 5(3).
The time limits indicated above are reduced to 72 hours or 15 days for
GOLD and SILVER categories respectively, as provided for the refund
of Customs Duty Drawbacks (see Chapter 11).
In terms of the Finance Ordinance 2000, zero-rating facility (refund
facility) will be confined to “same state goods” or covered by “continuous
chain tax invoices.” Refund of Sales Tax shall be allowed on export
of goods only against sales tax paid invoices relating to the same state
in which those goods were exported. In other words, refund of sales
tax will be allowed against sales tax invoices in respect of materials
and processes involved in the production of goods up to the state in
which those are exported.(Also see para 12.8.10)
In its letter No. 3(10) STP/2000 dt 11.08.2000, CBR had relaxed the
condition of the same state goods or continuous chain tax invoices stipulated
in the Sales Tax Refund Rules 2000 in respect of such inputs as are
purchased or acquired upto 31st August 2000 provided that outputs manufactured
or produced therefrom are exported upto 30th September, 2000.
Since documentation of textile sector is in progress, CBR has further
decided (letter No. 2(1) STP/2000(Pt) dt 31st August 2000) that, in
case of textile made-ups, only such refund claims shall be entertained
if these are supported with input tax invoices upto the value of 75%
of the total inputs value and are otherwise in order and refund in such
cases shall be paid only in respect of such input tax invoices. This
bench mark will stand enhanced to 80% with effect from 1st January,
2001 till 30th March, 2001, whereafter only such refund claims of textile
made ups shall be entertained which are supported with input tax invoices
upto at least 90% of the total inputs value. The condition of sales
tax claim is thus relaxed to the above extent.
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Sales Tax Payment by Cheque
Under the new section 73 of the Sales Tax Act 1990, all payments of input
tax of the value of Rs. 50,000/- and above have to be made by crossed
cheques. This was to be effective from 1st January 2000. This effective
date was later extended to 30th June 2000.
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Tax Exemption for Plant & Machinery
SRO-987(I)/99 dt 30.8.99 exempts from Sales Tax the following plant and
machinery, not manufactured locally, excluding generators, generating
sets, wires and cables and maintenance spares:-
- Plant and machinery, operated by power, imported or purchased locally
by a registered person, to be used for manufacture of sales taxable
goods by that registered person.
- Apparatus and appliances, including for metering and testing, for
use with machinery.
- Mechanical and electrical control and transmission gear for machinery.
- Components of machinery.
The machinery cannot be removed from the original premises before seven
years of the bill of entry or Sales Tax invoice or before five years
from the date of commercial production which ever is earlier, unless
with the permission from Collector
Sales Tax. Commercial production should be started within two years.
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