The Sales Tax Act of 1990 outlines the comprehensive framework for sales tax in Pakistan, detailing its scope, payment mechanisms, and collection procedures. It establishes rules for registration and de-registration of taxpayers, mandates record-keeping and invoicing requirements, and sets forth offenses and penalties for non-compliance. The Act also defines the powers of sales tax authorities and provides for appeal processes against tax decisions. Furthermore, it specifies exemptions and zero-rated goods, along with provisions for refunds and measures against tax fraud.

Sales Tax Act: Scope, Rates, and Exemptions

The Sales Tax Act, 1990, defines the scope of sales tax primarily under Section 3, outlining what is charged, levied, and paid, along with various conditions, exceptions, and special provisions.

Here’s a detailed discussion of the tax scope:

1. General Scope and Rate

• Taxable Supplies and Imports: Sales tax is generally charged, levied, and paid at a rate of 18% of the value. This applies to:
• Taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by them. A “taxable activity” is any economic activity, whether for profit or not, involving the supply of goods or services, or both.
• Goods imported into Pakistan, regardless of their final destination within Pakistan’s territories.

2. Specific Tax Rates and Applications The Act also specifies different rates and modes of taxation for particular goods or situations:

• Further Tax (Section 3(1A)):
• An additional tax of 4% of the value is levied on taxable supplies made to a person who has not obtained a registration number or is not an active taxpayer.
• The Federal Government can, however, issue notifications to specify taxable supplies that are exempt from this further tax.
• Goods in the Tenth Schedule (Section 3(1B)):
• For goods specified in the Tenth Schedule, tax is levied and collected based on the production capacity of plants, machinery, undertakings, establishments, or installations that produce or manufacture such goods.
• Alternatively, it can be on a fixed basis from persons who are in a position to collect such tax due to the nature of their business.
• Different rates can be prescribed for different regions or areas. For instance, bricks have fixed monthly rates depending on the district/province, ranging from Rs. 7,500 to Rs. 12,500. Cement or concrete blocks also have fixed rates per unit (e.g., Rs. 2 per sq.ft for paver, Rs. 3 per piece for hollow block). No input tax adjustment is allowed against tax paid under this schedule.
• Goods in the Third Schedule (Section 3(2)(a)):
• Taxable supplies and import of goods specified in the Third Schedule are charged at 18% of the retail price.
• If these supplies or imports are also specified in the Eighth Schedule, they are charged at the rates specified therein.
• The retail price, including sales tax, must be legibly, prominently, and indelibly printed or embossed by the manufacturer or importer on each article, packet, container, package, cover, or label.
• The Federal Government can declare higher rates on the retail price. The Board can exclude or include any taxable supply or import from this schedule.
• Goods in the Eighth Schedule (Section 3(2)(aa)):
• Goods listed in the Eighth Schedule are charged to tax at the specific rates and subject to conditions and limitations detailed within that schedule. Examples include second-hand clothing/footwear (5%), natural gas to fertilizer plants (5%), and locally manufactured electric vehicles (1%).
• Federal Government’s Discretion (Section 3(2)(b) & (5) & (6)):
• The Federal Government may, by notification, declare that tax on any taxable goods shall be charged, collected, and paid in a specific manner and at higher or lower rates.
• It can also levy and collect tax at an extra rate or amount not exceeding 18% of the value of certain goods or classes of goods and on specific persons or classes of persons.
• Furthermore, the Federal Government or the Board can, in lieu of the standard tax, levy and collect any deemed amount of tax on supplies or goods, and specify the mode, manner, or time of payment.
• Goods in the Ninth Schedule (Section 3(3B)):
• Sales tax on the import and supply of goods specified in the Ninth Schedule (e.g., cellular mobile phones) is charged, collected, and paid at the rates, in the manner, at the time, and subject to the procedure and conditions specified in the schedule or as prescribed. The liability falls on the persons specified (e.g., CMOs for SIM cards, importers for CBU/CKD phones, local manufacturers for locally manufactured phones).
• Withholding Sales Tax (Section 3(7)):
• Tax is withheld at specified rates (e.g., 1/5th or 1/10th of sales tax on invoice, or whole tax) by certain withholding agents (e.g., government departments, companies) from specific supplier categories (e.g., active taxpayers, non-active taxpayers).
• Online marketplaces facilitating the sale of third-party goods are liable to withhold tax at 1% of the gross value of supplies.
• Natural Gas to CNG Stations (Section 3(8)):
• Sales tax is charged by Gas Transmission and Distribution Companies from CNG stations at 18% of the value of supply to CNG consumers, excluding the amount of tax itself.
• Retailers and Electricity Bills (Section 3(9) & (12)):
• For retailers other than Tier-1 retailers, sales tax is charged through their monthly electricity bills at 5% if the bill is up to Rs. 20,000, and 7.5% if it exceeds Rs. 20,000. This is in addition to the tax on the electricity supply itself.
• The Federal Government can also levy and collect other amounts of tax from these retailers via electricity bills.
• Tier-1 Retailers (Section 3(9A)):
• Tier-1 retailers (defined categories like national/international chains, air-conditioned malls, high electricity bills, wholesaler-cum-retailers, accepting card payments, high withholding tax deductions, or other Board-prescribed persons) pay sales tax at the rates applicable to the goods sold under the Act.
• They are required to integrate their retail outlets with the Board’s computerized system for real-time reporting of sales. Failure to integrate can lead to a 60% reduction in adjustable input tax for that tax period.
• Minimum Production for Thirteenth Schedule Goods (Section 3(9AA)):
• For goods like steel products (billets, ingots, bars, re-rolled profiles, ship plates) in the Thirteenth Schedule, a minimum production for a month is determined based on input consumption (e.g., electricity consumed for steel products).
• If the minimum production exceeds actual supplies, tax liability is discharged based on the minimum production. In a full financial year, the tax paid cannot be less than the liability determined by minimum production.

3. Who Pays the Tax (Liability) The liability to pay sales tax generally rests with:

• The person making the supply in the case of supply of goods.
• The person importing the goods in the case of goods imported into Pakistan.
• However, the Board (with Federal Minister-in-charge’s approval) can specify goods where the liability shifts to the recipient of the supply.
• For goods in the Ninth Schedule, the liability is on the persons specified therein (e.g., Cellular Mobile Operators, importers, local manufacturers).

4. Zero-Rating (Section 4) Notwithstanding the general tax provisions (except for the further tax under section 3(1A)), the following goods are charged to tax at a zero per cent rate:

• Goods exported.
• Goods specified in the Fifth Schedule.
• Supply of stores and provisions for consumption aboard a conveyance proceeding to a destination outside Pakistan.
• Such other goods as the Federal Government may specify by notification for reasons of national security, natural disaster, national food security in emergency situations, and implementation of bilateral and multilateral agreements. Zero-rating does not apply to goods re-imported into Pakistan or goods entered for export but not actually exported.

5. Exemptions (Section 13)

• Supply or import of goods specified in the Sixth Schedule are exempt from tax, subject to conditions specified by the Federal Government.
• The Federal Government can also, in urgent circumstances (national security, disaster, food security, international agreements), exempt any supplies or imports of goods from whole or part of the tax. Such exemptions can be applied from a previous date.
• The Board is required to place all notifications issued under this section before the National Assembly.
• Notifications issued after July 1, 2015, are generally rescinded at the end of the financial year unless earlier rescinded.

Sales Tax Act, 1990: Procedures and Compliance

The Sales Tax Act, 1990, outlines a comprehensive set of tax procedures that govern the administration, collection, and enforcement of sales tax. These procedures cover everything from initial registration to the payment of tax, record-keeping, audits, refunds, and mechanisms for dispute resolution and recovery.

Here’s a detailed discussion of key tax procedures:

1. Registration and De-registration

• Mandatory Registration: Every person making taxable supplies in Pakistan, including zero-rated supplies, in the course of a taxable activity carried on by them, is required to be registered. This includes manufacturers (excluding cottage industries), liable retailers (excluding those paying via electricity bills), importers, exporters seeking refunds, wholesalers, dealers, and distributors. Additionally, persons required to be registered under other federal or provincial laws for duties/taxes collected as sales tax must register.
• Voluntary Registration: Persons not making taxable supplies in Pakistan but needing to register for imports or exports, or under other Act provisions, may also apply for registration.
• Regulation: The Board prescribes the manner in which registration is regulated.
• Discontinuance of Services: The Board can direct gas and electricity companies to discontinue connections for persons who fail to register for sales tax or, for Tier-1 retailers, fail to integrate with the Board’s computerized system. Restoration occurs upon registration or integration.
• De-registration, Blacklisting, and Suspension: The Board or an authorized officer may de-register a registered person if they are not required to be registered. If a registered person issues fake invoices or commits tax fraud, the Commissioner may suspend and blacklist them. During suspension, invoices issued by such a person are not eligible for sales tax refund or input tax credit. Once blacklisted, refunds or input tax credits claimed against their invoices (whether before or after blacklisting) are rejected through an appealable order after an opportunity to be heard. The Chief Commissioner can also review and modify suspension/blacklisting orders.
• Active Taxpayers List: The Board maintains an active taxpayers list and can impose restrictions on those who cease to be active taxpayers.

2. Tax Calculation and Payment

• General Rate: Sales tax is generally charged, levied, and paid at 18% of the value on taxable supplies by registered persons and on imported goods.
• Further Tax: An additional 4% tax is levied on taxable supplies made to a person who has not obtained a registration number or is not an active taxpayer, unless specifically exempted by the Federal Government.
• Specific Rates:Tenth Schedule Goods: Tax is levied on production capacity or a fixed basis for goods like bricks and cement/concrete blocks. Different rates may apply to different regions or areas, and no input tax adjustment is allowed against tax paid under this schedule.
• Third Schedule Goods: Tax is 18% of the retail price, which must be legibly printed on the goods by the manufacturer or importer. Higher rates can be declared, and goods can be added or excluded from this schedule.
• Eighth Schedule Goods: Tax is charged at specific rates and conditions as detailed in this schedule.
• Ninth Schedule Goods (Cellular Mobile Phones): Tax is charged at rates and in a manner specified in the schedule, with liability falling on CMOs for SIM cards, and importers/local manufacturers for phones, based on value.
• Federal Government Discretion: The Federal Government can specify other modes, manners, or higher/lower rates for charging and collecting tax on any taxable goods.
• Withholding Sales Tax: Tax is withheld by specified withholding agents (e.g., government departments, companies, online marketplaces) at prescribed rates from certain supplier categories (e.g., active, non-active taxpayers). Online marketplaces withhold 1% of the gross value of third-party goods.
• CNG Stations: Gas Transmission and Distribution Companies charge sales tax from CNG stations at 18% of the value of supply to CNG consumers.
• Retailers and Electricity Bills: Retailers other than Tier-1 are charged sales tax through their monthly electricity bills at 5% (up to Rs. 20,000 bill) or 7.5% (over Rs. 20,000), in addition to the tax on electricity supply.
• Tier-1 Retailers: These categories of retailers (e.g., national/international chains, those in air-conditioned malls, high electricity bills, etc.) pay sales tax at applicable rates and must integrate their retail outlets with the Board’s computerized system for real-time reporting of sales. Failure to integrate can lead to a 60% reduction in adjustable input tax.
• Minimum Production: For goods like steel products in the Thirteenth Schedule, a minimum monthly production is determined based on input consumption (e.g., electricity). If minimum production exceeds actual supplies, tax liability is discharged based on this minimum, ensuring a minimum tax payment over a financial year.
• Time and Manner of Payment: Tax on imports is paid as if it were a customs duty. Tax on taxable supplies during a tax period is paid by the registered person by the prescribed due date. Payments must generally be made through designated bank channels or other Board-specified modes.
• Installment Payments: The Federal Government can allow payment of sales tax on installment basis for federal/provincial governments or public sector organizations.

3. Returns

• Furnishing Returns: Every registered person must furnish a true, complete, and correct return in the prescribed form by the due date, indicating purchases, supplies, tax due and paid, and other information. The due date for returns is generally the 15th day of the month following the end of the tax period.
• Quarterly/Annual Returns: The Board can require quarterly or annual returns in addition to monthly returns.
• Electronic Filing: Returns filed electronically are deemed valid, and the Board can make rules for e-intermediaries to digitize and transmit data.
• Failure to File: An officer can issue a notice requiring a person to file a return within 15 days, with a limitation period of 15 years for tax fraud cases and 5 years otherwise.
• Revised Returns: A registered person can file a revised return within 120 days to correct omissions or wrong declarations, subject to Commissioner approval. Approval is not needed if filed within 60 days and leads to higher tax payable or lower refund claimed. Voluntary revision before an audit notice, with payment of short-paid tax and default surcharge, exempts from penalty. During audit or after show cause notice, higher penalties apply.
• Special Returns: The Board can require special returns (e.g., for quantity manufactured, purchases, supplies, payment of arrears) for specified periods.
• Final Return: A person applying for de-registration must furnish a final return.
• Return Deemed Made: A return made by a duly appointed representative is deemed to have been made by the person.

4. Record Keeping and Invoicing

• Record Maintenance: Registered persons making taxable supplies must maintain records of goods purchased, imported, and supplied (including zero-rated and exempt supplies) in English or Urdu at their business premises or registered office. These records must allow for ready ascertainment of tax liability and include details of supplies, purchases, imports, zero-rated/exempt supplies, double-entry sales tax accounts, and supporting documents like invoices, bank statements, utility bills, etc..
• Electronic Records: The Board may prescribe electronic maintenance of records and filing of returns.
• Business Bank Accounts: The Board can require registered persons to declare and use a specified number of business bank accounts for payments related to transactions under the Act.
• Electronic Fiscal Cash Registers: The Board may require certain persons to use electronic fiscal cash registers.
• Tax Invoices: A registered person making a taxable supply must issue a serially numbered tax invoice at the time of supply. This invoice must contain specific particulars: supplier’s and recipient’s details (including NIC/NTN for unregistered distributors), date, goods description/quantity, value (exclusive/inclusive of tax), and sales tax amount. Only registered persons can issue tax invoices. The Board can require electronic invoices.
• Record Retention: Records and documents must be retained for six years after the end of the tax period or until the final decision of any related legal proceedings.

5. Audits and Assessments

• Audit Selection: The Board can select persons or classes of persons for audit through a computer ballot (random or parametric). Selection parameters are confidential.
• Commissioner’s Audit Power: The Commissioner can direct an officer to conduct an audit of sales tax affairs based on written reasons, which are communicated to the registered person. Reasons must be based on scrutiny of records (returns, financial statements, third-party information) and not merely verification without identified risk factors.
• Audit Process: Officers can call for records, documents, and attend the registered person’s office. They can also conduct inquiries and obtain information from third parties. Audits can be conducted electronically.
• Special Audit Panels: The Board can appoint special audit panels (comprising Inland Revenue officers, chartered accountants, or cost/management accountants) to conduct audits, including refund claims and forensic audits, with scope determined by the Board or Commissioner. Members of these panels have powers similar to Inland Revenue officers for audits.
• Voluntary Payment Before/During Audit: A person voluntarily depositing short-paid or evaded tax with default surcharge before receiving an audit notice is exempt from penalty. If done during audit or before a show-cause notice, 25% of the penalty is paid. If after a show-cause notice, the full penalty is paid.
• Best Judgment Assessment: If a person fails to furnish a return after notice or fails to produce records for audit, the officer may make a best judgment assessment of tax payable or refund due, and impose penalty and default surcharge. Input tax may be disallowed if not verifiable. Such an assessment abates if the return is filed within 60 days with payment of tax, surcharge, and penalty.
• Assessment of Tax Not Levied/Short Levied/Erroneously Refunded: If tax was not levied, short levied, or erroneously refunded (due to collusion, deliberate act, or other reasons), an officer can issue a show-cause notice and pass an order to determine and recover the amount, plus penalty and default surcharge. Input tax can be disallowed if records are not provided.
• Failure to Withhold Sales Tax: If a person fails to withhold tax or deposit it, an officer can issue a show-cause notice and pass an order to determine and recover the amount, plus penalty and default surcharge.
• Limitation for Assessment: Show-cause notices for best judgment, short/unlevied tax, or failure to withhold tax must be issued within five years from the end of the financial year. Orders must be made within 120 days of the notice, with a possible 90-day extension. Time taken for stays or Alternative Dispute Resolution (ADR) proceedings is excluded.

6. Input Tax Adjustment and Refunds

• Input Tax Deduction: A registered person can deduct input tax paid or payable during the tax period for taxable supplies from their output tax liability, excluding further tax. Input tax can be claimed in any of the six succeeding tax periods if not deducted in the relevant period.
• Conditions for Deduction: To deduct input tax, the registered person must hold a tax invoice (or electricity/gas bill) in their name bearing their registration number. For imported goods, a bill of entry or goods declaration is required. Crucially, the supplier must have declared the supply in their return and paid the tax due.
• Restrictions on Deduction (Tax Credit Not Allowed): Input tax is not allowed on:
• Goods/services used for non-taxable supplies.
• Goods/services specified by the Federal Government.
• Goods for which sales tax has not been deposited by the supplier.
• Purchases with discrepancies in CREST or unverifiable in the supply chain.
• Fake invoices.
• Purchases where required information (under Section 26(5)) is not furnished.
• Goods/services not related to taxable supplies.
• Goods/services for personal or non-business consumption.
• Goods permanently attached to immovable property (e.g., building materials), unless for sale/resale or direct use in manufacturing taxable goods.
• Vehicles, parts of vehicles, electrical/gas appliances, furniture, office equipment (except electronic cash registers), unless for sale/resale.
• Services where input tax adjustment is barred by provincial law.
• Agricultural machinery/equipment taxed at 7% under Eighth Schedule.
• Goods/services not declared by the supplier in their return or tax not paid by the supplier.
• Input goods/services attributable to supplies to unregistered distributors without NIC/NTN.
• Proportionate Deduction: If a registered person deals in both taxable and non-taxable supplies, they can only reclaim the proportion of input tax attributable to taxable supplies.
• Adjustment Limit: Input tax adjustment is limited to 90% of output tax for a tax period, except for fixed assets/capital goods. The Board can exclude certain persons or classes. Excess input tax (not adjusted due to this limit) can be adjusted or refunded on a yearly basis.
• Refund of Input Tax: If input tax on zero-rated local supplies or exports exceeds output tax, the excess is refunded within 45 days of filing the claim. Excess input tax from other supplies can be carried forward. The Board can fix rates for export refunds. Refunds are adjusted against outstanding tax, default surcharge, or penalties. Refund claims are investigated within 60 days, extendable up to 120 days or nine months by the Board.
• Claim Period: Refund claims for tax paid or overpaid due to inadvertence, error, or misconstruction must be made within one year of payment. The period is reckoned from the date of judgment or decision for court-ordered refunds. No refund is admissible if the incidence of tax has been passed to the consumer.
• Delayed Refunds: If a refund is delayed beyond 45 days (for zero-rated/export supplies) or 45 days from a refund order (under Section 66), the claimant receives an additional sum equal to KIBOR per annum of the refund amount.
• Sales Tax Refund Bonds: Refunds can be paid through sales tax refund bonds issued by the FBR Refund Settlement Company, with a three-year maturity and 10% annual simple profit. These bonds are tradable and acceptable as collateral.
• Tax on Stocks Acquired Before Registration: Tax paid on goods purchased by a person before mandatory or voluntary registration (within 30 days of application, or 90 days for imports) can be treated as input tax if verifiable unsold stock.

7. Enforcement and Penalties

• Offences and Penalties: The Act specifies various offences and corresponding penalties, including fines and imprisonment, for actions such as:
• Failure to furnish returns.
• Failure to issue invoices.
• Unauthorized invoice issuance.
• Failure to notify changes in registration particulars.
• Failure to deposit tax due.
• Repeated erroneous calculation.
• Failure to apply for registration.
• Failure to maintain records.
• Failure to produce records for audit.
• Failure to furnish information required by Board.
• Tax fraud (submitting false documents, destroying records, false statements, issuing invoices without supply, collecting but not depositing tax, falsification of records, dealing with confiscated goods, making taxable supplies without registration, or any intentional act causing tax loss). Penalties include high fines and imprisonment up to 10 years, depending on the evaded amount.
• Obstructing authorized officers.
• Violating embargo on goods removal.
• Failure to make payment as prescribed (Section 73).
• Violating conditions of notifications.
• Officers causing loss to revenue or abetting.
• General contraventions.
• Repeating offences: penalties are doubled.
• Unauthorized access/use/falsification of computerized system.
• Dealing in goods with counterfeited/missing tax stamps/barcodes or without brand license.
• Avoiding monitoring/tracking by computerized system (e.g., non-prescribed invoices, duplicate numbers, defacing codes).
• Failure to integrate with the Board’s computerized system (Tier-1 retailers).
• Failure of licensed integrators to integrate registered persons.
• Failure to print retail price on Third Schedule goods.
• Bringing goods from tax-exempt areas without proper documents.
• Failure to share information under Section 56AB.
• Default Surcharge: If tax is not paid on time, or inadmissible credit/refund claimed, or zero-rating incorrectly applied, default surcharge is levied at 12% per annum or KIBOR plus 3% per annum (whichever is higher). For tax fraud, it’s 2% per month.
• Exemption from Penalties/Surcharge: Federal Government or Board can exempt from penalty/surcharge for recorded reasons.
• Powers of Officers:Summoning: Officers can summon persons to give evidence or produce documents for inquiries.
• Arrest and Prosecution: Officers (Assistant Commissioner rank or above) can arrest persons suspected of tax fraud or other prosecutable offenses. Arrests follow the Code of Criminal Procedure, 1898.
• Compounding Offences: The Commissioner can compound an offence of tax fraud (before or after proceedings) if the evaded tax, default surcharge, and penalty are paid.
• Procedure on Arrest: Detailed procedures for intimating the Special Judge, production before a judge/magistrate, bail, detention, inquiry, and report submission are specified.
• Access to Premises/Records: Authorized officers have free access (including real-time electronic access) to business premises, registered offices, stocks, and records, and can take custody of documents. Government departments must provide information/assistance.
• Power to Call for Information: Commissioners can require any person, including banking companies or regulatory authorities, to furnish information for tax fraud investigations.
• Obligation to Produce Documents: Any person required to maintain records must produce them for examination, allow copies, and answer questions. The Board can require information for policy formulation or administration.
• Searches Under Warrant: Officers can search places for documents relevant to proceedings with a magistrate’s warrant.
• Posting of Officers: The Board can post officers to registered persons’ premises to monitor production, sales, and stock.
• Monitoring/Tracking: The Board can specify goods or persons for monitoring production, sales, etc., through electronic or other means (e.g., tax stamps, barcodes). From a prescribed date, taxable goods cannot be removed or sold without affixing these stamps.
• Electronic Invoicing System Integration: The Board can require persons to integrate their electronic invoicing systems for real-time sales reporting. Licensed integrators facilitate this.
• Goods from Tax-Exempt Areas: Conveynaces carrying goods from tax-exempt areas (e.g., Azad Jammu & Kashmir, Gilgit-Baltistan) must be accompanied by prescribed documents. Check-posts can examine goods and documents; discrepancies can lead to seizure of goods and vehicles.
• Brand Name Licensing: Manufacturers of specified goods must obtain a brand license. Goods sold without a license are deemed counterfeit and are liable for confiscation and destruction.

8. Dispute Resolution and Appeals

• Appellate Hierarchy:Commissioner (Appeals): Appeals against decisions/orders by Inland Revenue officers regarding sections like refund, short paid amounts, audit orders, etc., are filed with the Commissioner (Appeals) if the value of assessment or refund does not exceed ten million rupees. Orders must be passed within 120 days (extendable by 60 days).
• Appellate Tribunal: Appeals against orders of the Commissioner (Appeals) where the value exceeds ten million rupees, or against orders of officers/Board directly in certain cases, are filed with the Appellate Tribunal. Cases pending before the Commissioner (Appeals) exceeding the Rs. 10 million limit are transferred to the Appellate Tribunal from December 31, 2024.
• High Court: Reference to the High Court can be made from the Appellate Tribunal or Commissioner (Appeals) on questions of law or mixed questions of law and fact.
• Board’s Power to Call for Records: The Board (and Commissioner) can examine records of departmental proceedings to assess legality or propriety, passing orders to modify decisions (e.g., enhance penalties) after providing a hearing.
• Alternative Dispute Resolution (ADR): For disputes involving tax liability of fifty million rupees or more (or any amount for State-Owned Enterprises), waiver of default surcharge/penalty, or other specific relief, an aggrieved person can apply to the Board for an ADR committee. ADR provisions of the Income Tax Ordinance, 2001 apply.

9. Recovery of Arrears

• Methods of Recovery: If tax is due, an officer can:
• Deduct the amount from money owed to the person by the government.
• Require any person holding money for the defaulter to pay the amount.
• Stop removal of goods from premises.
• Stop clearance of imported/manufactured goods or attach bank accounts.
• Seal business premises.
• Attach and sell movable or immovable property of the defaulter or guarantor.
• Appeal Pending: No recovery notice is issued if an appeal is pending before the Commissioner (Appeals) or Appellate Tribunal and 10% of the tax due has been paid.
• Write-off: The Board can write off unrecoverable arrears.
• Civil Court Powers: Officers have the same powers as a Civil Court for recovery of amounts due under a decree.
• International Assistance: Provisions for recovery of taxes also apply for assistance in pursuance of tax treaties or international agreements.

10. Technology and Information Sharing

• Computerized System: The Board may prescribe the use of a computerized system for registration applications, returns, and other information submission. Rules govern its conduct, security, and authorized access. Information received via the system is deemed furnished by the registered person unless proven otherwise and is confidential.
• Electronic Scrutiny and Intimation: The Board can implement a computerized system for automated scrutiny, analysis, and cross-matching of returns and data, sending electronic intimations to registered persons about issues, allowing them to clarify or rectify before legal action.
• E-Intermediaries: The Board can appoint e-intermediaries to file returns and other documents electronically on behalf of registered persons. Returns filed by e-intermediaries are deemed filed by the registered person, and e-intermediaries can be held jointly and severally responsible for incorrect information.
• Real-time Access to Databases: The Board can arrange for real-time access to information and databases from various authorities (NADRA, FIA, land records, provincial excise/taxation, electricity/gas suppliers) for tax purposes.
• Exchange of Information: The Federal Government can enter into bilateral/multilateral agreements with provincial governments or foreign countries for the exchange of information and assistance in tax recovery. The Board can share data with other federal/provincial government entities.

11. Special Procedures and Miscellaneous

• Power to Make Rules: The Board has the power to make rules for carrying out the purposes of the Act, including charging fees for processing documents.
• Special Procedure: The Board can prescribe special procedures for the scope and payment of tax, registration, book-keeping, invoicing, and returns for specific supplies.
• Condonation of Time-Limit: The Board can condone delays for applications or actions required under the Act or rules.
• Rectification of Mistake: Officers, Commissioner (Appeals), or Appellate Tribunal can rectify mistakes apparent from the record within five years.
• Prize Schemes: The Board can implement prize schemes to encourage purchases from registered persons issuing tax invoices, including “mystery shopping” to check compliance.
• Reward to Whistleblowers: The Board can sanction rewards to whistleblowers providing credible information leading to detection of tax evasion, tax fraud, corruption, or misconduct, if tax is collected.
• Certain Transactions Not Admissible: Payments for transactions exceeding Rs. 50,000 (in aggregate to a single supplier in a tax period), excluding utility bills, must be made through crossed banking instruments or online transfers from the buyer’s business bank account to the supplier’s business bank account. Failure to comply leads to disallowance of input tax credit, refund, etc.. Input tax attributable to taxable supplies exceeding certain thresholds made to unregistered persons is also not allowed, with specified exceptions.

These procedures collectively form the administrative framework of the Sales Tax Act, 1990, dictating how businesses and individuals interact with the tax system and how the authorities manage and enforce tax compliance.

Sales Tax Act: Offences and Penalties

Chapter VII of the Sales Tax Act, 1990, outlines various offences and the corresponding penalties. These penalties can include monetary fines, and in some cases, imprisonment.

Here’s a breakdown of key offences and penalties:

• Failure to Furnish Returns
• If a person fails to furnish a return by the due date, they are liable to a penalty of ten thousand rupees.
• If the return is filed within ten days of the due date, the penalty is two hundred rupees for each day of default.
• The officer of Inland Revenue may issue a notice requiring a person to furnish a return within fifteen days if they fail to do so, with a limitation period of fifteen years for tax fraud cases and five years for others.
• However, if a registered person voluntarily files a revised return and deposits the short-paid or evaded tax along with default surcharge before receiving a notice of audit, no penalty is recovered. If this is done during the audit or before a show cause notice under section 11E, they pay the evaded tax, default surcharge, and twenty-five percent of the penalty. If after the show cause notice, they pay the evaded tax, default surcharge, and full penalty, the notice abates.
• Invoice Related Offences
• Failure to issue an invoice when required: A penalty of five thousand rupees or three percent of the tax involved, whichever is higher.
• Unauthorized issuance of an invoice specifying a tax amount: A penalty of ten thousand rupees or five percent of the tax involved, whichever is higher.
• Issuance of any tax invoice without supply of goods leading to inadmissible claim of input tax credit or refund is considered a tax fraud.
• If a person integrated with the Board’s computerized system issues an invoice that does not carry the prescribed invoice number or barcode/QR code, or bears a duplicate/counterfeit/defaced number/barcode/QR code, they shall pay a penalty of five hundred thousand rupees or two hundred percent of the tax involved, whichever is higher. Additionally, they may face simple imprisonment for up to two years, or an additional fine of up to two million rupees, or both. The business premises may also be sealed.
• Tax Payment and Registration Offences
• Failure to deposit the tax due or any part thereof in the specified time or manner: A penalty of ten thousand rupees or five percent of the tax involved, whichever is higher. If paid within ten days from the due date, a penalty of five hundred rupees for each day of default applies. If not paid within sixty days of notice by an Inland Revenue officer (not below Assistant Commissioner), the defaulter may also face imprisonment up to three years, or a fine equal to the tax involved, or both, upon conviction by a Special Judge.
• Repeated erroneous calculation in a return during a year, leading to less than actual tax paid: A penalty of five thousand rupees or three percent of the tax involved, whichever is higher.
• Failure to apply for registration before making taxable supplies: A penalty of ten thousand rupees or five percent of the tax involved, whichever is higher. If registration is not obtained within sixty days of commencing taxable activity, the person may also face imprisonment up to three years, or a fine equal to the tax involved, or both, upon conviction by a Special Judge.
• Failure of a Tier-1 retailer to integrate their retail outlet with the Board’s computerized system: They are liable to a penalty of up to one million rupees, and if the offence continues for two months after the penalty, their business premises shall be liable to be sealed. Different penalty amounts are specified for first, second, third, and fourth defaults, and the business premises are liable to be sealed. The penalty for the first default may be waived if the retailer integrates their business before the second default penalty.
• Record Keeping and Information Sharing Offences
• Failure to maintain records as required: A penalty of ten thousand rupees or five percent of the tax involved, whichever is higher.
• Failure to produce records on first, second, or third notice: Penalties of five thousand, ten thousand, and fifty thousand rupees, respectively.
• Failure to furnish information required by the Board: A penalty of ten thousand rupees.
• Failure to share information under section 56AB: A penalty of twenty-five thousand rupees for the first default and fifty thousand rupees for each subsequent default.
• Tax Fraud and Obstruction Offences
• Submission of false or forged documents, destruction, alteration, mutilation, or falsification of records (including sales tax invoices), or knowingly/fraudulently making false statements/declarations/representations/personifications, giving false information, or issuing/using forged/false documents: A penalty of twenty-five thousand rupees or one hundred percent of the tax evaded or sought to be evaded, whichever is higher. Such a person may also face imprisonment up to five years (if tax evaded is less than one billion) or ten years (if tax evaded is one billion or more), and a fine equal to the tax evaded or sought to be evaded, or both. Tax fraud is defined comprehensively and includes suppression of supplies, false input tax credit claims, making taxable supplies without invoices, issuing invoices without supply, collection of tax not deposited, falsification of records, tampering with/destroying evidence, making taxable supplies without registration, or any intentional act/omission causing tax loss.
• Committing, causing to commit, or attempting tax fraud, or abetting/conniving in tax fraud: The person committing the fraud faces the same penalty and imprisonment as mentioned above for false documents. A person who abets or connives in tax fraud also faces similar imprisonment and fine.
• Denying or obstructing access of an authorized officer to business premises/records, or refusing access to stocks/accounts: A penalty of twenty-five thousand rupees or one hundred percent of the tax involved, whichever is higher. Additionally, they may face imprisonment up to five years, or a fine equal to the tax evaded or sought to be evaded, or both, upon conviction by a Special Judge.
• Violation of any embargo placed on removal of goods for tax recovery: A penalty of twenty-five thousand rupees or ten percent of the tax involved, whichever is higher. They may also face imprisonment up to one year, or a fine equal to the tax evaded or sought to be evaded, or both, upon conviction by a Special Judge.
• Obstructing an authorized officer in official duties: A penalty of twenty-five thousand rupees or one hundred percent of the tax involved, whichever is higher.
• Unauthorized access or use of computerized system, or falsifying/damaging information within it: A penalty of twenty-five thousand rupees or one hundred percent of the tax involved, whichever is higher. Such a person may also face imprisonment up to one year, or a fine equal to the tax evaded or sought to be evaded, or both.
• Manufacturing, possessing, transporting, distributing, storing, or selling specified goods with counterfeited/no tax stamps, banderoles, stickers, labels or barcodes: Such goods are liable to outright confiscation, and the person committing the offence shall pay a penalty of twenty-five thousand rupees or one hundred percent of the tax involved, whichever is higher. They may also face simple imprisonment up to three years, or an additional fine equal to the tax evaded or sought to be evaded, or both. For transport, the vehicle is subject to permanent seizure. Repeat sale may lead to sealing of premises.
• Penalties for other violations
• Failure to make payment in the manner prescribed under section 73 (regarding payment by crossed cheque/bank instrument for transactions over fifty thousand rupees): A penalty of five thousand rupees or three percent of the tax involved, whichever is higher.
• Failure to fulfill any conditions, limitations, or restrictions prescribed in a Notification: A penalty of five thousand rupees or three percent of the tax involved, whichever is higher.
• Any other contravention of the Act or rules for which no specific penalty is provided: A penalty of five thousand rupees or three percent of the tax involved, whichever is higher.
• For a repeat offence, the penalty is twice the amount provided for the said offence.

Default Surcharge (Section 34) In addition to tax due, if a registered person fails to pay tax on time, claims inadmissible tax credit/refund, or incorrectly applies the zero-rate, they shall pay a default surcharge. The rate of default surcharge is twelve percent per annum or KIBOR plus three percent per annum, whichever is higher, on the amount of tax due or erroneously refunded. If the default is due to tax fraud, the rate is two percent per month until the entire liability is paid. The calculation period for default surcharge varies based on whether it’s an inadmissible input tax credit/refund or non-payment of tax.

Exemption from Penalty and Default Surcharge (Section 34A) The Federal Government or the Board may, by notification or special order, exempt any person or class of persons from payment of whole or part of the penalty and default surcharge under sections 33 and 34, subject to specified conditions and limitations.

Power to Arrest and Prosecute (Section 37A) An officer of Inland Revenue not below the rank of Assistant Commissioner, or any other officer authorized by the Board, can cause the arrest of a person if they have reason to believe, based on material evidence, that the person has committed tax fraud or any offence warranting prosecution under this Act. All arrests are carried out according to the Code of Criminal Procedure, 1898. The Commissioner may, either before or after legal proceedings for tax recovery, compound the offence if the person pays the amount of tax evaded, default surcharge, and penalty. If the person suspected of tax fraud is a company, any director or officer personally responsible for the company’s actions contributing to the tax fraud is liable to arrest, but this does not absolve the company from its tax liabilities.

Procedure on Arrest (Section 37B) Upon arrest, the officer must immediately intimate the Special Judge. The arrested person must be produced before the Special Judge or the nearest Judicial Magistrate within twenty-four hours (excluding travel time). The Special Judge can grant or refuse bail. The officer holding the inquiry has powers similar to an officer in charge of a police station under the Code of Criminal Procedure, 1898. If there’s insufficient evidence, the person is released on bond, and a report is made to the Special Judge. A “Register of Arrests and Detentions” must be maintained with all relevant particulars. After inquiry, a complaint is submitted to the Special Judge.

Special Judges (Sections 37C-37I)

• The Federal Government appoints Special Judges, specifying their headquarters and territorial jurisdiction. A Special Judge must be or have been a Sessions Judge.
• Special Judges can take cognizance of offences punishable under the Act based on a written report from an Inland Revenue officer, a complaint/information, or their own knowledge. They may hold preliminary inquiries.
• Special Judges have exclusive jurisdiction over offences under this Act, meaning no other court can try such offences. Only the High Court can entertain appeals against orders of a Special Judge.
• The Code of Criminal Procedure, 1898, applies to Special Judge proceedings, treating them as a Court of Sessions.
• Cases can be transferred from one Special Judge to another by the High Court or Federal Government.
• Special Judges ordinarily hold sittings at their headquarters but can sit elsewhere for convenience.
• Appeals against orders or decisions of a Special Judge can be preferred to the High Court within sixty days.

Pakistan Sales Tax Exemptions Explained

Tax exemptions in Pakistan are primarily governed by Section 13 of the Sales Tax Act, 1990, which outlines the conditions and types of goods and imports that are exempt from sales tax.

Here’s a comprehensive overview of tax exemptions:

• General Principle of Exemption
• Section 13(1) states that the supply or import of goods specified in the Sixth Schedule shall be exempt from tax under the Sales Tax Act, 1990. This exemption is subject to conditions specified by the Federal Government.
• Definition: An “exempt supply” is specifically defined as a supply which is exempt from tax under Section 13. Correspondingly, “taxable goods” are all goods other than those exempted under Section 13.
• Authority and Conditions for Granting Exemptions
• The Federal Government has the authority to exempt any supplies or imports of goods (or classes of goods) from the whole or any part of the tax chargeable under the Act. This can be done by notification in the official Gazette, particularly when circumstances necessitate immediate action for national security, natural disaster, national food security in emergency situations, and the implementation of bilateral and multilateral agreements.
• Such exemptions can be applied retrospectively from any previous date specified in the notification.
• The Board is responsible for placing all exemption notifications issued under Section 13 before the National Assembly in a financial year.
• Notifications issued after July 1, 2015, generally stand rescinded on the expiry of the financial year in which they were issued, unless rescinded earlier. Specific extensions were provided for notifications issued on or after July 1, 2016, till June 30, 2018.
• Categories of Exempt Goods and Supplies (Sixth Schedule) The Sixth Schedule details various goods and supplies that are exempt, categorized into different tables with specific conditions:
• Table-1: Imports or Supplies This table lists goods that are exempt whether imported or supplied locally. Examples include:
• Essential Food Items: Pulses, rice, wheat, and wheat/meslin flour. Red chillies, ginger, and turmeric are also exempt unless sold under brand names or trademarks.
• Religious Texts: The Holy Quran (complete or in parts, including recordings) and other Holy books.
• Educational Materials: Newsprint and books (excluding brochures, leaflets, and directories).
• Financial Instruments: Currency notes, bank notes, shares, stocks, and bonds. Monetary gold is also exempt.
• Medical and Health-Related Goods: Artificial kidneys, eye cornea, hemodialysis machines and related equipment, angioplasty equipment, and specific drugs like cystagon, cysta drops, and trientine capsules (for personal use). Also, certain cardiology/cardiac surgery, neurovascular, electrophysiology, endosurgery, endoscopy, oncology, urology, and gynaecology disposables and equipment.
• Humanitarian and Diplomatic Supplies: Goods imported or supplied to diplomats, diplomatic missions, privileged persons and organizations, and goods imported or donated to non-profit making hospitals. Gifts and relief consignments received during natural disasters or from foreign governments/organizations to Federal/Provincial Governments or public sector organizations are also exempt.
• Specific Industry/Zone Exemptions:Supplies of raw materials, components, and goods for further manufacture in Export Processing Zones or the Gwadar Free Zone.
• Imports or supplies made to the Gwadar Special Economic Zone (excluding vehicles).
• Materials and equipment for the construction and operation of Gwadar Port and development of its Free Zone.
• Supplies made by businesses established within the Gwadar Free Zone (only within the zone).
• Vehicles imported by operating companies for Gwadar Port and Free Zone.
• Plant, machinery, equipment, and raw materials for consumption within Special Technology Zones.
• Supplies and imports for tribal areas (plant, machinery, industrial inputs, and electricity, subject to specific conditions and timelines).
• Agricultural Inputs: Pesticides and their active ingredients, fertilizers (excluding DAP), seeds for sowing, and bovine semen.
• Energy Products: Liquefied Natural Gas (LNG) imported by fertilizer manufacturers for use as feedstock, and specific POL products (MS (Petrol), High Speed Diesel Oil, Kerosene, Light Diesel Oil).
• Other Goods: Iodized salt bearing brand names and trademarks. Certain CKD kits for Electric Vehicles by local manufacturers are exempt till specific dates.
• Table-2: Local Supplies only This table specifies goods that are exempt only when supplied locally. Key exemptions include:
• Cottage Industry: Supplies made by cottage industries.
• Basic Food Items (unbranded/unpackaged): Fruit juices (fresh, frozen, preserved but not bottled, canned, or packaged), milk and cream (excluding branded retail packing), flavored milk (excluding branded retail packing), yogurt, butter, desi ghee, cheese, processed cheese (all excluding branded retail packing), products of meat or meat offal, fish and crustaceans (excluding branded/trademarked).
• Agricultural Produce: Agricultural produce of Pakistan not subjected to further manufacture, live animals and poultry, live plants, cereals (other than rice, wheat, and meslin flour), edible vegetables and fruits (fresh/frozen/preserved but not bottled/canned), sugar cane, and eggs.
• Basic Staples: All types of breads, nans, and chapattis.
• Animal Feed: Wheat bran and compost (non-commercial fertilizer).
• Technology & Media: Locally manufactured laptops, computers, notebooks, and personal computers. Newspaper.
• Industrial Inputs: Raw hides and skins, iron and steel scrap (with specific conditions). Single cylinder agriculture diesel engines (3 to 36 HP).
• Table-3: Capital Goods This table exempts plant, machinery, equipment, and apparatus (capital goods) from sales tax under specific conditions.
• Conditions: The imported goods must not be manufactured locally (certified by the Engineering Development Board). The Chief Executive (or authorized person) of the importing company must certify the goods are a bona fide requirement and provide information online. For partial shipments, complete details of the plant are required.
• Examples: Machinery for setting up hotels, power generation plants, water treatment plants, and other infrastructure projects around Gwadar. Parts for assembling/manufacturing personal computers and laptops (if imported by certified manufacturers/assemblers). Plant and machinery for setting up a Special Economic Zone (SEZ) by zone developers and for installation by zone enterprises. Plant and machinery for the assembly/manufacturing of electric vehicles on a one-time basis for new/expansion facilities. Machinery, equipment, and spares for power generation projects (hydel, oil, gas, coal, nuclear, renewable energy), including temporary import of construction machinery/vehicles for such projects.
• Table-4: Border Sustenance Markets This table provides exemption for goods supplied within the limits of Border Sustenance Markets established in cooperation with Iran and Afghanistan.
• Conditions: The exemption applies only to supplies within these markets. If goods are brought outside, tax is charged based on assessed value or fair market value. Imports must be cleared with a bank guarantee, which is released upon submission of a consumption certificate. The exemption is only available to persons with functional business premises within these markets.
• Examples: A wide range of agricultural products (e.g., various vegetables, pulses, spices, cereals, fruits, edible vegetables), dairy products, meat products, and some household items are listed.
• Distinction from Zero-Rating It’s important to differentiate “exemption” from “zero-rating” (Section 4). While both result in no sales tax being charged on the supply, their treatment of input tax differs:
• Exempt Supplies: Generally, input tax paid on goods or services used for exempt supplies is not allowed to be reclaimed or deducted.
• Zero-Rated Supplies: These are taxable supplies, but the tax rate is 0%. This typically allows the registered person to claim a refund of the input tax paid on goods and services used for making such supplies. Examples of zero-rated goods include exported goods and certain items specified in the Fifth Schedule.

Understanding these exemptions and their specific conditions is crucial for businesses operating within Pakistan’s sales tax framework.

Pakistan Sales Tax: Taxpayer Rights and Remedies

The Sales Tax Act, 1990 outlines several provisions that establish and protect taxpayer rights in Pakistan. These rights primarily revolve around due process, the ability to dispute tax decisions, the right to information, and certain protections regarding penalties and confidentiality.

Here are some of the key taxpayer rights and related provisions discussed in the sources:

• Right to Appeal and Dispute Resolution
• Appeal to Commissioner (Appeals): Any person, other than the Sales Tax Department, who is aggrieved by a decision or order passed by an officer of Inland Revenue under sections 10, 11, 25, 36, or 66, can file an appeal with the Commissioner Inland Revenue (Appeals) within thirty days of receiving the decision or order. This is applicable if the value of the assessment or refund does not exceed ten million rupees. Appeals filed after thirty days may be admitted if there’s sufficient cause for the delay. The Commissioner (Appeals) is generally required to pass an order within one hundred and twenty days of the appeal filing, with a possible extension of up to sixty days. The Commissioner (Appeals) cannot remand the case for de novo consideration but may conduct further inquiry. New documentary evidence not produced earlier will not be admitted unless there was sufficient cause for not producing it.
• Appeal to Appellate Tribunal: If the value of the assessment or refund exceeds ten million rupees, an appeal from the Commissioner (Appeals)’s order lies with the Appellate Tribunal Inland Revenue. Any person aggrieved by an order passed by an officer of Inland Revenue, the Board, or Commissioner (Appeals) (excluding specific suspension or blacklisting orders under section 21(2)) may prefer an appeal to the Appellate Tribunal within thirty days of receiving the order. The Appellate Tribunal follows the procedures outlined in sections 131 and 132 of the Income Tax Ordinance, 2001.
• Reference to the High Court: An aggrieved person or the Commissioner can apply to the High Court within thirty days of the Appellate Tribunal’s or Commissioner (Appeals)’s order, raising a question of law or a mixed question of law and fact. Section 133 of the Income Tax Ordinance, 2001, applies to such references.
• Alternative Dispute Resolution (ADR): For disputes concerning tax liability of fifty million rupees or above, or the admissibility of refunds, or the extent of waiver of default surcharge and penalty, an aggrieved person can apply to the Board for the appointment of a committee to resolve the dispute, provided criminal proceedings have not been initiated. For State-Owned Enterprises (SOEs), this limit does not apply, and it is mandatory for them to apply for ADR. No suit, prosecution, or other legal proceedings shall lie against an SOE in relation to a dispute resolved under this section.
• Right to Notice and Opportunity of Being Heard
• General Principle: The Board and Commissioner’s power to call for records and modify orders includes a crucial proviso: no order imposing or enhancing any penalty or fine or requiring payment of a greater amount of Sales Tax than originally levied shall be passed unless the person affected by such order has been given an opportunity of showing cause and of being heard.
• Audit Proceedings: When an audit is initiated, the Commissioner shall communicate the reasons for the audit to the registered person through the notice. After the audit is completed, if an order for recovery or assessment is necessary (e.g., under section 11E), the officer must provide an opportunity of being heard to the registered person.
• Best Judgment Assessment: If a person fails to furnish a return or produce required records, a best judgment assessment can be made after issuing a notice to show cause to such person. If the person files the return and pays the tax, default surcharge, and penalty within sixty days of the order, the notice to show cause and the assessment order shall abate.
• Assessment of Tax and Recovery of Short-Levied Tax: If any tax has not been levied, is short-levied, or erroneously refunded, the officer of Inland Revenue can pass an order to determine and recover the amount and impose penalties after issuing a show cause notice to the person.
• Failure to Withhold Sales Tax: For failure to withhold or deposit sales tax, an order to determine and recover the default amount and impose penalties/surcharge is passed after a notice to show cause to the person.
• Short Paid Amounts: While short-paid amounts (as indicated in the return) can be recovered without a show cause notice, no penalty under section 33 shall be imposed unless a show cause notice is given.
• De-registration and Blacklisting: If a registered person is blacklisted, any refund or input tax credit claimed against their invoices will be rejected through an appealable order after affording an opportunity of being heard to that person. The Chief Commissioner may also modify a suspension and blacklisting order, but no order shall be passed unless an opportunity of being heard has been provided to the registered person.
• Rectification of Mistake: An order to rectify a mistake that increases an assessment, reduces a refund, or otherwise adversely affects the taxpayer, cannot be made unless the taxpayer has been given a reasonable opportunity of being heard.
• Right to Refund
• Timely Refunds: If input tax exceeds output tax due to zero-rated local supplies or exports, the excess shall be refunded to the registered person not later than forty-five days of filing of refund claim.
• Delayed Refund Compensation: If a refund due under section 10 is not made within the specified time, the claimant is entitled to a further sum equal to KIBOR per annum of the refund amount from the day following the expiry of the deadline until the payment is made. This also applies to refunds due to court or tribunal decisions.
• Refund through Bonds: Sales tax refunds may also be paid through sales tax refund bonds, which have a maturity period of three years and bear annual simple profit at ten percent. These bonds can be traded in secondary markets and accepted by banks as collateral.
• Exemption from Penalty and Default Surcharge
• Voluntary Compliance: If a registered person voluntarily files a revised return and deposits the short-paid or evaded tax along with default surcharge before receiving a notice of audit, no penalty shall be recovered from him. Similar provisions exist for payment during audit or after a show cause notice, allowing for reduced or full penalty payment respectively.
• Waiver by Government/Board: The Federal Government or the Board may exempt any person or class of persons from payment of the whole or part of the penalty and default surcharge imposed under sections 33 and 34, subject to specified conditions and limitations.
• Right to Information and Access to Documents
• Issuance of Duplicate Documents: An officer of Inland Revenue can issue an attested duplicate of any sales tax document available with the department or filed under the Act, to a relevant registered person upon payment of a prescribed fee.
• Proper Service of Orders/Decisions: The Act specifies methods for serving notices, orders, or requisitions (e.g., personal service, registered post, courier, electronically), ensuring proper communication to the taxpayer.
• Right to Condonation of Time-Limit
• The Board may, even after a specified time period has expired, permit an application to be made or an act to be done within an appropriate time, and this power can be delegated to a Commissioner.
• Confidentiality of Information
• Information acquired under the Act is generally confidential, and public servants are prohibited from disclosing it, except as specifically provided by law (e.g., for exchange of information under agreements). Information gathered through the computerized system is also explicitly stated to be confidential and for official and legal purposes only, with no unauthorized access permitted.

Sales Tax Act: Registration Requirements and Penalties

Based on the provided excerpts from the Sales Tax Act, 1990, here are all the details concerning registration:

Requirements for Registration

Every person engaged in making taxable supplies in Pakistan, including zero-rated supplies, in the course or furtherance of any taxable activity, is required to be registered under this Act if they fall into any of the following categories:

• A manufacturer who is not running a cottage industry.
• A retailer who is liable to pay sales tax under the Act or rules made thereunder, excluding retailers required to pay sales tax through their electricity bill under sub-section (9) of section 3.
• An importer.
• An exporter who intends to obtain sales tax refund against his zero-rated supplies.
• A wholesaler, dealer, or distributor.
• A person who is required, under any other 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 levy under the Act.

Persons not engaged in making taxable supplies in Pakistan may apply for registration if required for making imports or exports, or under any other provisions of the Act or any other Federal law.

Regulation of Registration

The registration under this Act shall be regulated in such manner as the Board may, by notification in the official Gazette, prescribe.

Consequences of Not Being Registered

A person liable to be registered but not registered under this Act shall not be entitled to any benefit available to a registered person under any provisions of this Act or the rules made thereunder.

Discontinuance and Restoration of Utility Connections

The Board has the power to direct gas and electricity distribution companies to discontinue connections for persons who fall into the following categories:

• Any person, including Tier-1 retailers, who fail to register for sales tax purposes.
• Notified Tier-1 retailers who are registered but not integrated with the Board’s Computerized System. Upon registration or integration, as the case may be, the Board shall notify the restoration of their gas or electricity connection through a Sales Tax General Order.

De-registration, Blacklisting, and Suspension of Registration

The Board or any authorized officer may, subject to the rules, de-register a registered person or a class of registered persons not required to be registered under this Act.

Notwithstanding anything in the Act, if the Commissioner is satisfied that a registered person has issued fake invoices or otherwise committed tax fraud, they may issue an order of suspension and blacklisting or suspend their registration according to prescribed procedures.

During the period of suspension of registration, invoices issued by such person shall not be entertained for sales tax refund or input tax credit. Once such person is blacklisted, the refund or input tax credit claimed against invoices issued by them, whether prior or after blacklisting, shall be rejected through a self-speaking appealable order, after affording an opportunity of being heard to such person.

If the Board, concerned Commissioner, or an authorized officer has reasons to believe that a registered person is involved in issuing fake or flying invoices, claiming fraudulent input tax or refunds, does not physically exist, or conducts actual business, or is committing any other fraudulent activity, they may, after recording reasons in writing, block the refunds or input tax adjustments of such person and direct further investigation and legal action.

The Chief Commissioner may, on their own motion or an application from the registered person, examine the record of suspension and blacklisting orders and modify them as deemed fit, provided an opportunity of being heard has been provided to the registered person.

Active Taxpayers List

The Board has the power to maintain an active taxpayers list as prescribed by rules, and such rules may impose restrictions and limitations on a person who ceases to be an active taxpayer. A person not an “active taxpayer” is subject to a further tax at the rate of four percent of the value on taxable supplies made to them.

Penalties Related to Registration

Failure to apply for registration before making taxable supplies can result in a penalty of ten thousand rupees or five percent of the amount of tax involved, whichever is higher. Furthermore, if such a person fails to get registered within sixty days of the commencement of taxable activity, they may also be liable, upon conviction by a Special Judge, to imprisonment for up to three years, or a fine equal to the amount of tax involved, or both.

Final Return upon De-registration

If a person applies for de-registration, they shall furnish a final return to the Commissioner in the specified form, manner, and time as directed by the Commissioner, before de-registration.

Tax Paid on Stocks Acquired Before Registration

Tax paid on goods purchased by a person who is subsequently required to be registered due to new liabilities or levies, or who gets voluntary registration, shall be treated as input tax. This applies if the goods were purchased from a registered person against an invoice issued under section 23 during a period of thirty days before applying for registration, and constitute verifiable unsold stock on the date of compulsory registration or application for registration. For imported goods, tax paid thereon during a period of ninety days before applying for registration shall be treated as input tax, provided the person holds the bill of entry and the goods are verifiable unsold or un-consumed stocks on the date of compulsory registration or application.

Navigating Input Tax: Sales Tax Act, 1990

Drawing on the provided excerpts from the Sales Tax Act, 1990, here are all the details about input tax:

Definition of Input Tax

“Input tax”, in relation to a registered person, means:

• Tax levied under this Act on the supply of goods to the person.
• Tax levied under this Act on the import of goods by the person.
• Tax levied under the Federal Excise Act, 2005, in sales tax mode as a duty of excise on the manufacture or production of goods, or the rendering or providing of services, acquired by the person.
• Provincial Sales Tax levied on services rendered or provided to the person, excluding those services specified by the Board through notification.
• Tax levied under the Sales Tax Act, 1990, as adapted in the State of Azad Jammu and Kashmir, on the supply of goods received by the person.

Determination of Tax Liability and Deduction of Input Tax

For determining tax liability in a tax period, a registered person is generally entitled to deduct input tax paid or payable during the tax period for the purpose of taxable supplies made or to be made by him from the output tax that is due from him. This excludes the amount of further tax under sub-section (1A) of section 3.

Conditions for deducting input tax:

• In the case of a claim for input tax on a taxable supply made, the registered person must hold a tax invoice in his name and bearing his registration number in respect of such supply. For electricity or gas supply, a bill bearing the registration number and connection address is required.
• From a date to be notified by the Board, if the supplier has not declared the supply in his return or has not paid the tax amount as indicated in his return, the input tax may not be deductible.
• For goods imported into Pakistan, the registered person must hold a bill of entry or goods declaration in his name and showing his sales tax registration number, duly cleared by customs.
• For goods purchased in auction, the person must hold a treasury challan in his name and bearing his registration number, showing sales tax payment.
• The Board, with the approval of the Federal Minister-in-charge, may, by special order and subject to conditions, allow a registered person to deduct input tax.
• The Federal Government may, by notification, allow a registered person or class of persons to deduct a specified amount of input tax.

Limitation on adjustment:

• A registered person shall generally not be allowed to adjust input tax in excess of ninety percent of the output tax for that tax period.
• This restriction does not apply to fixed assets or capital goods.
• The Board may exclude any person or class of persons from this restriction by notification.
• Any input tax not allowed under the ninety percent restriction may be adjusted or refunded on a yearly basis in the second month following the end of the financial year, subject to conditions (e.g., for companies, furnishing a certified statement with annual audited accounts).
• The Board may prescribe any other limit of input tax adjustment for any person or class of persons.
• For locally manufactured electric vehicles subject to a reduced rate (Eighth Schedule), input tax is limited to the extent of output tax, and no refund or carry forward of excess input tax is allowed.
• If a Tier-1 retailer does not integrate his retail outlet with the Board’s computerized system, the adjustable input tax for that tax period shall be reduced by 60%.

When Input Tax Credit is NOT Allowed (Tax Credit Not Allowed – Section 8)

A registered person is not entitled to reclaim or deduct input tax paid on:

• Goods or services used for purposes other than taxable supplies made or to be made by him.
• Any other goods or services specified by the Federal Government via notification.
• Goods under sub-section (5) of section 3 (tax levied at extra rate or amount).
• Goods or services where sales tax has not been deposited in the Government treasury by the respective supplier.
• Purchases where a discrepancy is indicated by CREST (Computerized Risk-Based Evaluation of Sales Tax) or input tax is not verifiable in the supply chain.
• Fake invoices.
• Purchases made by a registered person who fails to furnish information required by the Board under sub-section (5) of section 26.
• Goods and services not related to the taxable supplies made by the registered person.
• Goods and services acquired for personal or non-business consumption.
• Goods used in, or permanently attached to, immoveable property, such as building and construction materials, paints, electrical and sanitary fittings, pipes, wires and cables, excluding pre-fabricated buildings and such goods acquired for sale or re-sale or for direct use in the production or manufacture of taxable goods.
• Vehicles falling in Chapter 87 of the First Schedule to the Customs Act, 1969, parts of such vehicles, electrical and gas appliances, furniture furnishings, office equipment (excluding electronic cash registers), excluding such goods acquired for sale or re-sale.
• Services where input tax adjustment is barred under the respective provincial sales tax law.
• Import or purchase of agricultural machinery or equipment subject to sales tax at the rate of 7% under Eighth Schedule.
• From a date to be notified by the Board, such goods and services which, at the time of filing of return by the buyer, have not been declared by the supplier in his return or he has not paid the amount of tax due as indicated in his return.
• Input goods or services attributable to supplies made to un-registered distributors on a pro-rata basis, for which sale invoices do not bear the NIC number or NTN of the recipient as stipulated in section 23.
• No input tax credit is allowed to persons who paid fixed tax under any provisions of this Act prior to December 1, 1998.

If a registered person deals in both taxable and non-taxable supplies, only the proportion of input tax attributable to taxable supplies can be reclaimed. No person other than a registered person shall make any deduction or reclaim input tax.

Refund of Input Tax

• If the input tax paid on taxable purchases during a tax period exceeds the output tax on account of zero-rated local supplies or exports, the excess amount of input tax shall be refunded to the registered person not later than forty-five days of filing the refund claim.
• For excess input tax against supplies other than zero-rated or exports, such excess may be carried forward to the next tax period along with input tax not adjustable under section 8B(1). The Board may prescribe a procedure for refunding such excess.
• The Board may direct that refund of input tax against exports be paid at fixed rates.
• If a registered person is liable to pay any tax, default surcharge, or penalty, the refund of input tax shall be made after adjustment of any unpaid outstanding amounts.
• If there’s reason to believe a person claimed inadmissible input tax credit or refund, proceedings shall be completed within sixty days, extendable to one hundred and twenty days by an Additional Commissioner, and up to nine months by the Board.
• No refund is admissible if the incidence of tax has been passed directly or indirectly to the consumer.
• Delayed Refund: If a refund due under section 10 is not made within the specified time, the claimant is paid an additional sum equal to KIBOR per annum of the refund amount. This additional amount doesn’t apply if the claim’s admissibility is under investigation.
• Refunds may also be paid through sales tax refund bonds issued by FBR Refund Settlement Company Limited, in book-entry form.

Tax Paid on Stocks Acquired Before Registration (Section 59)

Tax paid on goods purchased by a person who is subsequently required to be registered (due to new liabilities/levies) or who gets voluntary registration shall be treated as input tax. This applies if:

• Goods were purchased from a registered person against a tax invoice (section 23) during a period of thirty days before applying for registration.
• Goods constitute verifiable unsold stock on the date of compulsory registration or application.
• For imported goods, tax paid thereon during a period of ninety days before applying for registration is treated as input tax, provided the person holds the bill of entry and the goods are verifiable unsold or un-consumed stocks.

Penalties and Consequences Related to Input Tax

• Failure to apply for registration before making taxable supplies: Penalty of ten thousand rupees or five percent of the amount of tax involved, whichever is higher. If not registered within sixty days, possible imprisonment up to three years or fine equal to tax involved, or both. A person liable to be registered but not registered shall not be entitled to any benefit available to a registered person.
• Discrepancy in CREST or unverifiable input tax: Input tax adjustment can be disallowed.
• Issuing fake invoices or committing tax fraud: Commissioner may suspend and blacklist the registered person.
• During suspension, invoices issued by such person shall not be entertained for sales tax refund or input tax credit.
• Once blacklisted, refund or input tax credit claimed against invoices issued by them (prior or after blacklisting) shall be rejected after affording an opportunity of being heard.
• If a registered person is believed to be involved in fraudulent activities (e.g., fake invoices, fraudulent input tax/refunds, non-existence), the Board/Commissioner may block refunds or input tax adjustments and direct investigation.
• Transactions not admissible (Section 73): Payment for a transaction exceeding fifty thousand rupees (in aggregate to a single supplier in a tax period), excluding utility bills, must be made through banking channels (crossed cheque, bank draft, pay order, or other crossed banking instrument) from the buyer’s business bank account to the supplier’s business bank account.
• If payment is made otherwise, the buyer shall not be entitled to claim input tax credit, adjustment or deduction, or refund. This also applies if the amount is not deposited in the supplier’s business bank account.
• Adjustments between amounts payable and receivable to/from the same party may be treated as valid payments, subject to conditions and prior Commissioner approval.
• Input tax attributable to taxable supplies made to unregistered persons: A registered person shall not be entitled to deduct input tax attributable to such taxable supplies exceeding, in aggregate, one hundred million rupees in a financial year or ten million rupees in a tax period. This does not apply to supplies made to government departments not engaged in taxable supplies, foreign missions/diplomats, and other persons not engaged in supplying taxable goods, or persons/classes of persons specified by the Board.

This comprehensive overview covers the details about input tax as presented in the provided Sales Tax Act, 1990 excerpts.

Output Tax: Definition, Liability, and Compliance

Output tax, as defined in the Sales Tax Act, 1990, is a fundamental component of a registered person’s sales tax liability. Here are all the details about output tax based on the provided sources:

Definition and Scope of Output Tax

“Output tax”, in relation to a registered person, is defined as:

• Tax levied under this Act on a supply of goods, made by the person. This is the primary form of output tax, charged at the standard rate of 18% of the value of taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him.
• Tax levied under the Federal Excise Act, 2005 in sales tax mode as a duty of excise on the manufacture or production of goods, or the rendering or providing of services, by the person.
• Sales tax levied on the services rendered or provided by the person under the Islamabad Capital Territory (Tax on Services) Ordinance, 2001.

Specific goods and services may be subject to different rates or modes of tax collection, which still constitute output tax. For instance:

• Goods specified in the Third Schedule are charged to tax at 18% of the retail price. If these are also in the Eighth Schedule, their rates apply.
• Goods specified in the Eighth Schedule are charged at rates and subject to conditions specified therein. For example, locally manufactured electric vehicles (Table-1, S.No. 70, 71) are at 1%.
• Sales tax on goods specified in the Ninth Schedule (e.g., cellular mobile phones) is levied and collected in a specific mode and manner, and the liability to pay rests on persons specified therein.
• For Tier-1 retailers, sales tax is paid at the rate applicable to the goods sold.
• The minimum production for steel products can determine the quantity supplied, and the liability to pay tax is discharged accordingly if the minimum production exceeds actual supplies.

Determination of Tax Liability and Adjustment

For determining a registered person’s tax liability in a tax period, they are generally entitled to deduct input tax paid or payable during the tax period for the purpose of taxable supplies made or to be made by them, from the output tax. This deduction, however, excludes the amount of further tax under sub-section (1A) of section 3.

Key rules for adjustment against output tax include:

• Input Tax Limit: A registered person is generally not allowed to adjust input tax in excess of ninety percent of the output tax for that tax period.
• This 90% restriction does not apply to fixed assets or capital goods.
• The Board may exclude any person or class of persons from this restriction by notification.
• Any input tax not allowed under this restriction may be adjusted or refunded on a yearly basis in the second month following the end of the financial year, subject to conditions (e.g., for companies, furnishing a certified statement with annual audited accounts).
• For locally manufactured electric vehicles subject to a reduced rate under the Eighth Schedule, input tax is limited to the extent of output tax, and no refund or carry forward of excess input tax is allowed.
• Tier-1 Retailers Non-Integration: If a Tier-1 retailer does not integrate their retail outlet with the Board’s computerized system, the adjustable input tax for that tax period shall be reduced by 60%. This effectively increases their net output tax liability.
• Debit and Credit Notes: Where a registered person has issued a tax invoice and an event such as cancellation, return of goods, or change in supply value occurs, they may issue a debit or credit note and make corresponding adjustment against output tax in the return.
• Tax Fraction Recovery: If any tax or charge has not been levied or is short levied, the amount of tax shall be recovered as a tax fraction of the value of supply.

Refund of Input Tax in Relation to Output Tax

If the input tax paid on taxable purchases during a tax period exceeds the output tax on account of zero-rated local supplies or exports, the excess input tax shall be refunded to the registered person within forty-five days of filing the refund claim. For excess input tax against supplies other than zero-rated or exports, such excess may be carried forward to the next tax period.

However, for goods where a minimum value addition tax is paid at import stage (Twelfth Schedule), the refund of excess input tax over output tax attributable to this tax shall not be refunded to a registered person in any case, except if used for making zero-rated supplies.

Withholding of Sales Tax

The sales tax on certain supplies is withheld at the rates specified in the Eleventh Schedule by designated withholding agents (e.g., federal/provincial government departments, companies, online marketplaces). This is a mechanism for the collection of output tax at the point of transaction, impacting the supplier’s net output tax liability.

Consequences and Penalties Related to Output Tax

Non-compliance related to output tax can lead to penalties and default surcharges:

• Default Surcharge: If a registered person does not pay the tax due or any part thereof in time, or incorrectly applies the rate of zero per cent to supplies made by him, they shall, in addition to the tax due, pay default surcharge. This surcharge is calculated at 12% per annum or KIBOR plus 3% per annum, whichever is higher, of the amount of tax due. In cases of tax fraud, the rate is 2% per month.
• Assessment and Recovery: If an officer of Inland Revenue suspects that due to any reason, a person has not paid or short paid due sales tax, or has claimed an inadmissible input tax credit or refund, they can issue an order to determine and recover the unpaid or short paid amount of tax, along with imposing penalties and default surcharge.
• Failure to Withhold Tax: If a person required to withhold sales tax fails to do so, or fails to deposit it, the officer of Inland Revenue can recover the amount in default and impose penalties and default surcharge.
• Tax Fraud: “Tax fraud” explicitly includes “suppression of supplies that are chargeable to tax under this Act” and “intentionally understating or underpaying the tax liability”. This is a severe offense with significant penalties, including imprisonment and fines.

In summary, output tax is the sales tax a registered person charges on their taxable supplies and services, forming the basis of their tax liability, against which input tax can be adjusted under specific conditions. Various rules, limitations, and penalties ensure its correct determination and timely payment.

Sales Tax on Imports: Pakistan’s 1990 Act

To provide you with a comprehensive understanding of “imports” within the context of the Sales Tax Act, 1990, I will draw upon all relevant details from the provided sources.

Overview of Imports under the Sales Tax Act, 1990

The Sales Tax Act, 1990, consolidates and amends the law relating to the levy of tax on, among other things, the importation of goods. Any person who imports goods into Pakistan is considered an “importer” under this Act.

Scope and Payment of Tax on Imports

Sales tax is a fundamental component of the tax levied on imports:

• General Rate: A sales tax at the rate of 18% of the value is charged, levied, and paid on goods imported into Pakistan, irrespective of their final destination in territories of Pakistan.
• Liability: The person importing the goods is liable to pay the tax in the case of goods imported into Pakistan.
• Mode and Time of Payment: The tax on imported goods is charged and paid in the same manner and at the same time as if it were a duty of customs payable under the Customs Act, 1969. Provisions of the Customs Act, 1969, including section 31A thereof, apply to the collection, payment, and enforcement of this tax where no specific provision exists in the Sales Tax Act.
• Change in Tax Rate: If there is a change in the tax rate, imported goods are charged at the rate in force:
• For goods entered for home consumption, on the date a goods declaration is presented under section 79 of the Customs Act, 1969.
• For goods cleared from a warehouse, on the date a goods declaration for clearance is presented under section 104 of the Customs Act, 1969.
• If a goods declaration is presented in advance of the conveyance’s arrival, the tax rate in force on the date the manifest is delivered applies.
• If the tax is not paid within seven days of the goods declaration, the tax is charged at the rate in force on the date of actual payment.

Valuation of Imported Goods

The “value of supply” for imported goods is specifically defined:

• Standard Valuation: For imported goods (excluding those specified in the Third Schedule), the value is determined under section 25 of the Customs Act, 1969, including any customs duties and federal excise duty levied thereon.
• Board’s Power to Fix Value: The Board, with Federal Minister-in-charge approval, may, by notification, fix the value of any imported goods (including those in the Third Schedule) or class of supplies. If the actual import value is higher than the fixed value, the higher value applies unless directed otherwise by the Board.

Input Tax and Adjustments for Imports

“Input tax” includes tax levied under this Act on the import of goods by the person.

• Deduction from Output Tax: For registered persons, input tax paid or payable on imports can be deducted from the output tax.
• Conditions for Deduction: To deduct input tax on imported goods, the person must hold a bill of entry or goods declaration in their name and showing their sales tax registration number, duly cleared by the customs.
• Acquired Before Registration: Tax paid on imported goods acquired during a period of ninety days before making an application for registration can be treated as input tax, provided the person holds the bill of entry and the goods constitute verifiable unsold or un-consumed stock on the registration date.
• Exclusion of Input Tax: The Federal Government may specify goods or services for which input tax paid on imports is not allowed to be reclaimed or deducted. This applies to goods used for non-taxable supplies, or those specified by the government.

Exemptions and Concessions for Imports

Certain imports are exempt from sales tax or are subject to reduced rates, as specified in various schedules:

• Sixth Schedule (Exempt Imports or Supplies): This schedule lists numerous goods that are exempt from sales tax upon import. Examples include:
• Pulses, rice, wheat, and wheat/meslin flour.
• Newsprint and books (excluding brochures, leaflets, directories).
• Currency notes, bank notes, shares, stocks, and bonds.
• Artificial kidneys, hemodialysis machines, angioplasty equipment, and other specific medical devices.
• Goods imported by diplomats, diplomatic missions, privileged persons/organizations, and under government agreements.
• Raw materials and intermediary products for manufacture of goods meant for export by registered manufacturer-cum-exporters, or for goods supplied to Export Processing Zones.
• Materials and equipment for construction and operation of Gwadar Port and Free Zone development imported by China Overseas Ports Holding Company Limited (COPHCL) and its operating companies, contractors, and sub-contractors, subject to conditions.
• Machinery, equipment, materials, and goods imported for exclusive use within the limits of Gwadar Free Zone or for making exports therefrom by investors, subject to Customs Act procedures.
• Iodized salt (bearing brand names and trademarks).
• Liquefied Natural Gas imported by fertilizer manufacturers for use as feedstock.
• Plant, machinery, equipment, including dumpers and special purpose motor vehicles, if not manufactured locally, for specific motorway and highway construction projects (e.g., Karachi – Peshawar Motorway).
• Supplies and imports for tribal areas till 30th June, 2025, subject to conditions including providing a pay order as security for sales tax that is returned upon presenting a consumption/installation certificate.
• Dietetic foods for children with inherent metabolic disorders (with quota approval).
• CKD kits for local manufacturers of specific Electric Vehicles (Road Tractors, Buses, Rickshaws, Loaders, Trucks, Motorcycles).
• CKD (in kit form) of 4-wheel electric vehicles (small cars/SUVs, LCVs with specific battery capacities) by local manufacturers until 30th June, 2026.
• Plant, machinery, equipment and raw materials for consumption within Special Technology Zones.
• Raw materials, components, parts, and plant/machinery imported under Export Facilitation Scheme, 2021.
• Photovoltaic cells.
• Goods imported by or donated to hospitals run by non-profit institutions (if zero-rated for customs duty).
• Fertilizers (excluding DAP).
• Goods produced/manufactured in Pakistan, exported, and subsequently re-imported within one year.
• Goods received as gifts and relief consignments in natural disasters/catastrophes, or as gifts/donations from foreign governments/organizations.
• Gold imported under entrustment scheme.
• Specific medicines (cystagon, cysta drops, trientine capsules for personal use).
• Bovine semen.
• Sixth Schedule, Table-3 (Capital Goods Exemption): Plant, machinery, equipment, and capital goods are exempt from sales tax upon import, subject to conditions such as non-local manufacturing certification by the Engineering Development Board, and verification by the importing company’s Chief Executive. This includes items for:
• Hotels, power generation plants, water treatment plants, and other infrastructure projects within 30 km of Gwadar zero point.
• Assembling and manufacturing of personal computers and laptops (specific parts).
• Setting up a Special Economic Zone (SEZ) by zone developers and for installation in that zone by zone enterprises.
• Assembly/manufacturing of electric vehicles and expansion in existing units for electric vehicle specific plant/machinery.
• Power generation projects (hydel, oil, gas, coal, nuclear, renewable energy) and related construction machinery imported temporarily.
• Eighth Schedule (Reduced Rates for Imports or Supplies): Some imported goods are subject to reduced sales tax rates:
• Second hand and worn clothing or footwear: 5%.
• Phosphoric acid: 5% if imported by a fertilizer company for manufacturing DAP.
• Potassium Chlorate (KCLO3): 18% plus Rs. 60 per kilogram (with exceptions for Ministry of Defence Production).
• Rock phosphate: 10% if imported by fertilizer manufacturers for use in manufacturing fertilizers.
• Imported personal computers and laptop computers, notebooks: 10%.
• Electric vehicle in CBU condition of 50 kwh battery or below: 12.5%.
• EV transport buses of 25 seats or more in CBU condition: 1%.
• Substances registered as drugs and raw materials for pharmaceutical products: 1% (with specific conditions, including no input tax adjustment).
• DAP: 5% (no refund of excessive input tax).
• School/drawing supplies (colors, inks, erasers, sharpeners, geometry boxes, pens, pencils): 10%.
• Oil cake and other solid residue: 10%.
• Tractors: 10%.
• Ninth Schedule (Special Tax Mode for Cellular Mobile Phones): Sales tax on the import and supply of cellular mobile phones is charged, collected, and paid at specific rates and in a specific manner. The tax on CBUs at import or registration (IMEI number) is:
• Not exceeding US$ 500: 18% ad valorem.
• Exceeding US$ 500: 25% ad valorem.
• Tax on import in CKD/SKD condition is 18% ad valorem. The liability to pay tax on imported phones is on the importer.

Minimum Value Addition Tax (Twelfth Schedule)

A minimum value addition tax at 3% ad valorem is levied and collected at the import stage from importers on all taxable goods, in addition to the regular sales tax.

• Input Tax Treatment: This value addition tax paid at import stage forms part of input tax and is deductible from output tax.
• Refund Restriction: However, the refund of excess input tax over output tax attributable to this tax shall not be refunded to a registered person in any case, except that as used for making of zero-rated supplies.
• Exclusions from Value Addition Tax: Several categories of goods are excluded from this minimum value addition tax, including:
• Raw materials and intermediary goods imported by a manufacturer for in-house consumption (with some exceptions like certain scrap materials).
• Petroleum products imported by licensed oil marketing companies.
• Registered service providers importing goods for in-house business use (not for further supply).
• Cellular mobile phones or satellite phones.
• LNG / RLNG.
• Second-hand and worn clothing/footwear.
• Gold and silver in un-worked condition.
• Goods specified in the Third Schedule on which tax is paid on retail price basis.
• Plant, machinery, and equipment (Chapters 84 and 85 PCT) imported by a manufacturer for in-house installation or use.
• Specific electric vehicles (CKD kits and CBUs) and motor cars of cylinder capacity up to 850cc, with specified timelines.

Records and Documents for Imports

Registered persons making taxable supplies must maintain records of goods imported, indicating the description, quantity, value of goods, and the amount of tax paid on imports. For input tax deduction on imports, a bill of entry or goods declaration in the person’s name and registration number, duly cleared by customs, must be held.

Repayment and Drawback on Re-exports

• General Repayment: The Board may authorize repayment of whole or part of tax paid on goods used in the production, manufacture, processing, repair, or refitting in Pakistan of other goods.
• Drawback on Re-export: If imported goods, on which tax was paid, are re-exported and are identifiable, seven-eighths of such tax can be repaid as drawback, provided re-export occurs within two years (extendable by one year) from importation. Customs Act, 1969, provisions relating to drawback of customs duties apply mutatis mutandis. The Board may also modify or prohibit repayment of drawback in certain cases.

This detailed breakdown covers all aspects of “imports” as presented in the provided Sales Tax Act, 1990 excerpts.

Sales Tax and Exports Regime

Here are the details about exports, drawing on the information from the sources:

• Scope of Sales Tax and Exports
• The Sales Tax Act, 1990, is designed to consolidate and amend the law relating to the levy of a tax on the sale, importation, exportation, production, manufacture, or consumption of goods.
• Zero-Rating for Exports
• Goods exported are generally charged to tax at the rate of zero percent. This means no sales tax is levied on these goods.
• This zero-rating provision applies notwithstanding the general scope of tax outlined in Section 3, except for the further tax under sub-section (1A) of section 3.
• Other zero-rated goods include:
• Supply of stores and provisions for consumption aboard a conveyance proceeding to a destination outside Pakistan, as specified in section 24 of the Customs Act, 1969.
• Such other goods as the Federal Government may specify by notification for purposes of national security, natural disaster, national food security in emergency situations, and implementation of bilateral and multilateral agreements.
• Goods specified in the Fifth Schedule.
• Conditions and Restrictions for Zero-Rating
• The zero-rating shall not apply in respect of a supply of goods which:
• Are exported, but have been or are intended to be re-imported into Pakistan.
• Have been entered for export under Section 131 of the Customs Act, 1969, but are not exported.
• Have been exported to a country specified by the Federal Government by notification.
• The Board, with the approval of the Federal Minister-in-charge, may, by notification, restrict the amount of credit for input tax actually paid and claimed by a person making a zero-rated supply of goods otherwise chargeable to sales tax.
• Refund of Input Tax related to Exports
• If the input tax paid by a registered person on taxable purchases during a tax period exceeds the output tax on account of zero-rated local supplies or exports made during that tax period, the excess amount of input tax shall be refunded to the registered person not later than forty-five days of filing of refund claim.
• The Board may, by notification, direct that refund of input tax against exports shall be paid at fixed rates and in a specified manner.
• If a registered person is liable to pay any tax, default surcharge, or penalty under any law administered by the Board, the refund of input tax will be made after adjustment of any unpaid outstanding amounts.
• If there is reason to believe that a person has claimed an inadmissible input tax credit or refund, proceedings must be completed within sixty days, extendable up to one hundred and twenty days by an Additional Commissioner Inland Revenue, and further up to nine months by the Board.
• Registration Requirements for Exporters
• An exporter who intends to obtain sales tax refund against his zero-rated supplies is required to be registered under the Act, if not already registered.
• Record Keeping for Exports
• A registered person making taxable supplies must maintain records of supplies made, including zero-rated and exempt supplies, in a form that permits ready ascertainment of tax liability. These records should include description, quantity, and value of goods, name and address of the recipient, and the amount of tax charged.
• Special Powers to Deliver Goods for Export without Tax Payment
• The Federal Government may authorize the import of goods without payment of tax for:
• Registered importers importing such goods temporarily with a view to subsequent exportation.
• Registered manufacturer-cum-exporters who import raw materials and intermediary products for further manufacture of goods meant for export.
• Drawback on Re-exportation
• When goods imported into Pakistan, on which tax has been paid, are re-exported outside Pakistan and are identifiable, seven-eighths of such tax shall be repaid as drawback.
• The provisions of the Customs Act, 1969, relating to drawback of customs duties apply to such tax.
• This drawback is generally repaid only if the re-export occurs within two years from the date of importation, although the Board may extend this period by one year for sufficient cause.
• For goods taken into use between importation and re-exportation, the Board can modify the drawback amount, prohibit repayment, or vary conditions.
• Specific Export-Related Entries in Schedules
• Fifth Schedule (Zero-Rating):
• Supplies to diplomats, diplomatic missions, privileged persons, and organizations covered under various government agreements.
• Supplies of raw materials, components, and goods for further manufacture of goods in Export Processing Zones.
• Supplies made to exporters under the Duty and Tax Remission Rules, 2001.
• Imports or supplies made to Gwadar Special Economic Zone, excluding certain vehicles, subject to conditions.
• Supplies of raw materials, components, and goods for further manufacture of goods in the Gwadar Free Zone and export thereof.
• Supplies of locally manufactured plant and machinery to manufacturers in the Gwadar Free Zone, subject to conditions (e.g., if transferred to tariff area, tax is charged on import value).
• Machinery, equipment, materials, and goods imported for exclusive use within Gwadar Free Zone or for making exports therefrom by investors, subject to Customs Act procedures.
• Goods imported by various agencies of the United Nations, diplomats, diplomatic missions, privileged persons and organizations that are zero-rated for customs duty under Customs Act, 1969.
• Machinery, equipment and materials imported for exclusive use within Export Processing Zone or for making exports therefrom, and goods imported for warehousing in EPZs by investors.
• Goods produced or manufactured in and exported from Pakistan which are subsequently imported within one year of their exportation, provided Customs Act conditions are met.
• Input Tax Adjustment Limitations for Exports
• Twelfth Schedule (Minimum Value Addition Tax): Value addition tax paid at import stage forms part of input tax. The refund of excess input tax over output tax, which is attributable to this tax, shall not be refunded to a registered person in any case, except that as used for making of zero-rated supplies.

Sales Tax Invoices: Requirements and Implications

Invoices are a crucial element within the sales tax framework, serving as primary documents for recording taxable supplies, determining tax liability, and claiming input tax credits or refunds. The Sales Tax Act, 1990, outlines specific requirements and implications related to their issuance, content, and use.

Here are the detailed aspects of invoices as per the sources:

1. Purpose and Scope of Tax Invoices

• A tax invoice is a serially numbered document that a registered person making a taxable supply must issue at the time of supply of goods.
• Invoices are part of the records that registered persons must maintain to permit ready ascertainment of their tax liability.
• The Sales Tax Act, 1990, aims to regulate the levy of tax on the sale, importation, exportation, production, manufacture, or consumption of goods. Invoices are central to tracking these transactions.

2. Required Particulars of a Tax Invoice A tax invoice must contain the following details:

• Name, address, and registration number of the supplier.
• Name, address, and registration number of the recipient.
• For supplies by a manufacturer or importer to an unregistered distributor, the National Identity Card (NIC) number or National Tax Number (NTN) of the unregistered distributor is required. This specific condition came into effect from August 1, 2019.
• However, the NIC or NTN condition does not apply if payment is made through debit or credit card or digital mode.
• Date of issue of the invoice.
• Description and quantity of goods (e.g., for textile yarn and fabric, this includes count, denier, and construction).
• Value exclusive of tax.
• Amount of sales tax.
• Value inclusive of tax.

The Board has the authority to specify modified invoices for different persons or classes of persons. Importantly, not more than one tax invoice shall be issued for a single taxable supply.

3. Who Can Issue an Invoice

• Only a registered person or a person paying retail tax is authorized to issue an invoice under this Act.

4. Electronic Invoices and Computerized Systems

• The Board may require registered persons making taxable supplies to issue electronic invoices, subject to specified conditions, restrictions, and limitations.
• The Board can also prescribe the manner and procedure for regulating the issuance and authentication of tax invoices.
• The Board is empowered to prescribe the use of a computerized system for carrying out the purposes of the Act, which includes the receipt of applications for registration, returns, and other declarations or information. This supports the use of electronic invoicing.

5. Invoices and Input Tax Adjustment/Refunds

• To claim input tax credit for a taxable supply, a registered person must hold a tax invoice in their name and bearing their registration number.
• For electricity or gas supplies, a bill bearing the registration number and connection address is sufficient.
• A critical condition is that the supplier must have declared the supply in their return or paid the tax due as indicated in their return; otherwise, the input tax deduction may not be allowed from a Board-notified date.
• If a registered person has issued a tax invoice and the amount needs modification due to reasons like supply cancellation, goods return, or changes in value, they can issue a debit or credit note and make corresponding adjustments against output tax in their return.
• Input tax paid on “fake invoices” is explicitly not allowed.
• If sales invoices do not bear the NIC or NTN of the recipient (as required under section 23) for supplies to unregistered distributors, input tax adjustment for associated goods or services will be limited on a pro-rata basis.
• For zero-rated local supplies or exports, if the input tax paid by a registered person exceeds the output tax, the excess amount of input tax shall be refunded. This implies that zero-rated supplies, documented by invoices, are key for refunds.
• When a taxable activity or part thereof is sold or transferred to another registered person as an ongoing concern, the taxable goods are transferred via a zero-rated invoice.

6. Payment for Transactions and Invoices

• For transactions exceeding Rs. 50,000 (in aggregate to a single supplier in a tax period, excluding utility bills), payment of the sales tax invoice amount must generally be made through a crossed cheque, crossed bank draft, crossed pay order, or any other crossed banking instrument from the buyer’s business bank account.
• Online transfers and credit card payments from a business account are also accepted, provided they are verifiable from bank statements.
• Adjustments of amounts payable and receivable between the same parties can be treated as valid payments, provided tax was charged/paid by both, and prior approval from the Commissioner is obtained.
• If payment is not made in the prescribed manner, the buyer will not be entitled to claim input tax credit, adjustment, deduction, refund, repayment, drawback, or zero-rating. For credit transactions, the payment must be transferred within 180 days of the invoice issuance.
• The transferred amount must be deposited in the supplier’s business bank account; otherwise, the supplier will lose entitlement to input tax benefits.

7. Penalties and Offences Related to Invoices

• Failure to issue an invoice when required can result in a penalty of Rs. 5,000 or three percent of the tax involved, whichever is higher.
• Unauthorized issuance of an invoice (one that specifies a tax amount without authorization) carries a penalty of Rs. 10,000 or five percent of the tax involved, whichever is higher.
• Destroying, altering, mutilating, or falsifying records, including a sales tax invoice, can lead to a penalty of Rs. 25,000 or 100% of the tax evaded, whichever is higher, along with potential imprisonment and/or a fine.
• For registered persons integrated with the Board’s computerized system, issuing an invoice without the prescribed invoice number, barcode, or QR code, or one that has a duplicate invoice number, counterfeit barcode/QR code, or defaced details, incurs a significant penalty of Rs. 500,000 or 200% of the tax involved (whichever is higher), plus potential imprisonment and a fine. The business premises may also be sealed.

8. Record Keeping

• Persons required to maintain records, including invoices, must retain them for a period of six years after the end of the tax period to which they relate, or until any related legal proceedings are finalized.

9. Special Procedures and Modifications

• The Board may prescribe special procedures for invoicing requirements for certain supplies.

By Amjad Izhar
Contact: amjad.izhar@gmail.com
https://amjadizhar.blog

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