What is Value Added Tax (VAT)?

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Taxation Management FIN 623

MODULE 18

LESSON 18.43

SALES TAX

Background:

At the time of independence of Pakistan, Sales Tax was a provincial subject and was in vogue in the

provinces of Sind and Punjab.

Sales tax was declared as federal subject in 1948 vide General Sales Tax Act, 1948.

This levy was transferred to the domain of Central Government vide Sales Tax Act, 1951.

Sales Tax Act, 1951 was replaced by Sales tax act, 1990 which is the sales tax law till date.

Sales Tax Act 1990:

Basic philosophy of this Act is based on "VAT" type of tax.

What is Value Added Tax (VAT)?

VAT is a specific turnover tax levied at each stage in the production and distribution process. VAT,

ultimately has its incidence on the individual consuming the goods and availing the services. However,

liability for VAT is on the supplier of goods and services. In this type of tax, VAT system of Tax Credit is

available for all the intermediaries (suppliers of goods and services) and burden of tax lies on final

consumer.

Preamble of the Act, states that it is an Act to consolidate and amend the law relating to levy of tax on:

Sale

Importation

Exportation

Production

Manufacture or

Consumption of goods

Features of Sales Tax

· Indirect tax

· Broad based

· Elastic/ Flexible

· Easy to collect

· Potential for revenue generation

Definitions: `Section 2'

"Appellate Tribunal" means the Customs, Excise and Sales Tax Appellate Tribunal constituted under

section 194 of the Customs Act;

"Appropriate officer" means an officer of Sales Tax authorized by the Board by notification in the official

Gazette to perform certain functions under this Act;

'arrears' includes the un-paid amounts of tax, default surcharge, extra amount of tax, fines, penalties, fees

or any other sums, however described, as have been assessed, adjudged or demanded under this Act,

"associated persons" means any two or more persons who are close relatives to each other or who are

interconnected with each other in the following way, namely:--

(i) if the persons, being companies or undertakings, are under common management or control or

one is the subsidiary of the other;

(ii) if a person who is the owner or partner or director of a company or undertaking, or who, directly

or indirectly, holds or controls twenty per cent shares in such company or undertaking, is also the

owner, partner or director of another company or undertaking, or, directly or indirectly, holds or

controls twenty per cent shares in that company or undertaking;

"Banking Company" means a banking company as defined in the Banking Companies Ordinance, 1962

(LVII of 1962) and includes any body corporate which transacts the business of banking in Pakistan.

"Board" means the Central Board of Revenue constituted under the Central Board of Revenue Act, 1924

(IV of 1924);

"Collector" means the Collector of Sales Tax appointed under section 30;

"Common taxpayer identification number" means the registration number or any other number

allocated to a registered person;

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"Computerized system" means any comprehensive information technology system to be used by the

Board or any other office as may be notified by the Board, for carrying out the purposes of this Act;

"Customs Act" means the Customs Act 1969 (IV of 1969), and where appropriate all rules and

notifications made under that Act;

(6A) 'defaulter' means a person and, in the case of company or firm, every director, or partner of the

company, or as the case may be, of the firm, of which he is a director or a partner or a proprietor and

includes guarantors or successors, who fail to pay the arrears;

(6B) "Default Surcharge" means the surcharge payable by a defaulter at the rate specified in section 34 of

this Act;";

(7) "Distributor" means a person appointed by a manufacturer, importer or any other person for a

specified area to purchase goods from him for further supply and includes a person who in addition to

being a distributor is also engaged in supply of goods as a wholesaler or a retailer;

(8) "Document" includes any electronic data, computer programs, computer tapes, computer disks,

micro-films or any other medium for the storage of such data;

(9) "due date", in relation to the furnishing of a return under section 26 and section 26AA means the

15th day of the month following the end of the tax period, or such other date as the Federal Government

may, by notification in the official Gazette, specify;

(9A) "e-intermediary" means a person appointed as e-intermediary under section 52A for filing of

electronic returns and such other documents as may be prescribed by the Board from time to time, on

behalf of a person registered under section 14;

(10) "establishment" means an undertaking, firm or company, whether incorporated or not, an

association of persons or an individual;

(11) "exempt supply" means a supply which is exempt from tax under section 13;

(12) "goods" include every kind of movable property other than actionable claims, money, stocks, shares

and securities;

(13) "importer" means any person who lawfully imports any goods into Pakistan;

(14) "input tax", in relation to a registered person, means the tax -

(a) levied under this Act on the supply of goods received by that person;

(b) levied under this Act on goods imported, entered and cleared under section 79 or section 104 of

the Customs Act, by that person;

Kashmir, on the supply of goods received by that person; and

(d) chargeable as duties of excise under section 3 of the Federal Excise Act, 2005, on such excisable

goods as are mentioned in the Second Schedule thereto or such excisable services as the Federal

Government may from time to time notify under section 7 thereof and on which such duties are

charged, levied and paid as if it were a tax payable under section 3 of this Act.

(15) "Local Sales Tax Office" means the office of Superintendent of Sales Tax, or such other office as

the Board may, by notification in the official Gazette, specify;

(16) "Manufacture" or "produce" includes -

(a) any process in which an article singly or in combination with other articles, materials, components,

is either converted into another distinct article or product or is so changed, transformed or

reshaped that it becomes capable of being put to use differently or distinctly and includes any

process incidental or ancillary to the completion of a manufactured product;

(b) process of printing, publishing, lithography and engraving; and

preparation of goods in any other manner;

(17) "manufacturer" or "producer" means a person who engages, whether exclusively or not, in the

production or manufacture of goods whether or not the raw material of which the goods are produced or

manufactured are owned by him; and shall include --

(a) a person who by any process or operation assembles, mixes, cuts, dilutes, bottles, packages,

repackages or prepares goods by any other manner;

(b) an assignee or trustee in bankruptcy, liquidator, executor, or curator or any manufacturer or

producer and any person who disposes of his assets in any fiduciary capacity; and

right to goods being manufactured, whether in his or its name, or on his or its behalf, as the case

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may be, whether or not such person, firm or company sells, distributes, consigns or otherwise

disposes of the goods:

· Provided that for the purpose of refund under this Act, only such person shall be treated as

manufacturer-cum-exporter who owns or has his own manufacturing facility to manufacture or produce the

goods exported or to be exported;

(18) "Officer of Sales Tax" means an officer appointed under section 30,

(19) "open market price" means the consideration in money which that supply or a similar supply would

generally fetch in an open market;

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