The following is the latest of the blogs published for KCO Blogs (Phase 2). this particular blog is written by  Mr. H. M. Shafaat Ali, Supervisor, Taxation and Corporate Services. Mr. Shafaat has summarized the the grand phenomenon of Sales Tax. Please provide this blog for enhancing your knowledge but also ascertain the immaculate command of Shafaat Sahib on this subject matter.

An indirect tax, such as sales tax, value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary, such as a retail store from the person who bears the ultimate economic burden of the tax, such as the buyer of the consumer goods. An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. Examples would be tax on fuel, liquor, and cigarettes. Thus, an indirect tax is such which can be shifted or passed on, and invariably, the end customer has to bear the burden.

In Pakistan, the sales tax is charged to consumers based on the purchase price of certain goods and services. The benchmark we use for the sales tax rate refers to the highest rate. Revenues from the Sales Tax Rate are an important source of income for the government of Pakistan.

Government earns revenue through plenty of ways like interests, dividends, trading profits etc and tax is one of the primary tool of revenue in above mentioned ways. Someone rightly describes tax as;
“A fine is a tax for doing something wrong whilst tax is a fine for doing something right.”

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

Persons Liable to pay 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

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.

Compulsory Registration

Every person in sectors mentioned above, who makes a taxable supply in Pakistan is required to be registered under the Sales Tax Act. However, from taxable supplies made in any tax period during the last twelve months ending any tax period does not exceed ten million rupees or whose annual utility (electricity, gas and telephone) bills during the last twelve months ending any tax period do not exceed eight hundred thousand  rupees.

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.

Filling of Return

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.

Hafiz M. Shafaat Ali