SALES TAX

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Taxation Management FIN 623

MODULE 18

LESSON 18.44

SALES TAX

(20) "output tax" in relation to any registered person means the tax charged under this Act in respect of a

supply of goods made by that person and shall include duties of excise chargeable under section 3 of the

Central Excises Act, 1944 (I of 1944) on such excisable goods or services as are notified by the Federal

Government under the third proviso to sub-section (1) thereof and on which such duties are charged, levied

and paid as if it were a tax payable under section 3 of this Act;

(21) "Person" includes a company, an association, a body of individuals whether incorporated or not, a

public or local authority, a Provincial Government or the Federal Government;

(22) "Prescribed" means prescribed by rules made under this Act;

(23) "registered office" means the office or other place of business specified by the registered person in

the application made by him for registration under this Act or through any subsequent application to the

Collector;

(24) "registration number" means the number allocated to the registered person for the purpose of this

Act;

(25) "registered person" means a person who is registered or is liable to be registered under this Act:

· Provided that a person liable to be registered but not registered under this Act and shall remain liable to

further tax under sub-section (1A) of section 3 and shall not be entitled to any benefit available to a

registered person under any of the provisions of this Act or the rules made there under;

(27) "retail price", with reference to the Third Schedule, means the price fixed by the manufacturer

inclusive of all charges and taxes (other than sales tax) at which any particular brand or variety of any article

should be sold to the general body of consumers or, if more than one such price is so fixed for the same

brand or variety, the highest of such price,

28) "retailer" means a person, supplying goods to general public for the purpose of consumption:

· Provided that any person, who combines the business of import and retail or manufacture or

production with retail, shall notify and advertise wholesale prices and retail prices separately, and declare

the address of retail outlets, and his total turnover per annum shall be taken into account for the

purposes of registration under section 14.

(28A) "retail tax" means tax levied under section 3AA;

(29) "return" means any return required to be furnished under Chapter V of this Act;

(29A) "sales tax account" means an account representing the double entry recording of sales tax

transactions in the books of account;

(30) "Schedule" means a Schedule appended to this Act;

(31) "similar supply", in relation to the open market price of goods, means any other supply of goods

which closely or substantially resemble the characteristics, quantity, components and materials of the

aforementioned goods;

(31A) "special audit" means an audit conducted under section 32A;

(32) "Special Judge" means the Special Judge appointed under Section 185 of the Customs Act;

(33) "supply" includes sale, lease or other disposition of goods in the course or carried out for

consideration and also includes

(a) putting to private, business or non-business use of goods acquired, produced or manufactured in

the course of business;

(b) auction or disposal of goods to satisfy a debt owed by a person; and

Provided that the Federal Government, may by notification in the official Gazette, specify such other

transactions which shall or shall not constitute supply;

(34) "tax" means the sales tax, retail tax and includes default surcharge, or any other sum payable under

any of the provisions of this Act or the rules made there under;

(35) "taxable activity" means any activity which is carried on by any person, whether or not for a

pecuniary profit, and involves in whole or in part, the supply of goods or rendering of services on which

sales tax has been levied under the respective ordinance and use of goods acquired for private purposes or

for the manufacture of exempt goods without making supply to any other person, whether for any

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consideration or otherwise, and includes any activity carried on in the form of a business, trade or

manufacture;

(36) "tax fraction" means the amount worked out in accordance with the following formula:

100 + a

('a' is the rate of tax specified in section 3):

(37) "Tax fraud" means knowingly, dishonestly or fraudulently and without any lawful excuse (burden of

proof of which excuse shall be upon the accused)

(i) doing of any act or causing to do any act; or

(ii) omitting to take any action or causing the omission to take any action including the making of

taxable supplies without getting registration under this Act; or

(iii) falsifying the sales tax invoices;

· In contravention of duties or obligations imposed under this Act, rules or instructions issued there under

with the intention of understating the tax liability or underpaying the tax liability or underpaying the tax

liability for two consecutive tax periods for two consecutive tax periods or overstating the entitlement to

tax credit or tax refund to cause loss of tax;

(39) "taxable goods" means all goods other than those which have been exempted under section 13;

(40) "tax invoice" means a document required to be issued under section 23;

(41) "taxable supply" means a supply of taxable goods made by an importer; manufacturer, wholesaler

(including dealer), distributor or retailer other than a supply of goods which is exempt under section 13 and

includes a supply of goods chargeable to tax at the rate of zero per cent under section 4;

(43) "tax period" means a period of one month or such other period as the Federal Government may, by

notification in the official Gazette, specify;

(44) "time of supply" means a supply shall be deemed to have taken place at the earlier of the time of

delivery of goods or the time when any payment is received by the supplier in respect of that supply:

· Provided that where any part payment is received

(a) for a supply in a tax period, it shall be accounted for in the return for that tax period; and

(b) in respect of an exempt supply, it shall be accounted for in the return for that tax period during

which the exemption is withdrawn from such supply:

Provided further that:

(a) where any goods are supplied by a registered person to an associated person and the goods are not

to be removed, the time of supply shall be the time at which these goods are made available to the

recipient; and

(b) where the goods are supplied under hire purchase agreement, the time of supply shall be the time

at which the agreement is entered into;

(46) "Value of supply" means;

(a) in respect of a taxable supply, the consideration in money including all Federal and Provincial

duties and taxes, if any, which the supplier receives from the recipient for that supply but

excluding the amount of tax:

Provided that:

(i) in case the consideration for a supply is in kind or is partly in kind and partly in money, the

value of the supply shall mean the open market price of the supply excluding the amount of

tax;

(ii) in case the supplier and recipient are associated persons and the supply is made for no

consideration or for a consideration which is lower than the open market price, the value of

supply shall mean the open market price of the supply excluding the amount of tax; and

(iii) in case a taxable supply is made to a consumer from general public on installment basis on a

price inclusive of mark up or surcharge rendering it higher than open market price, the value

of supply shall mean the open market price of the supply excluding the amount of tax.

(b) In case of trade discounts, the discounted price excluding the amount of tax,. provided the tax

invoice shows the discounted price and the related tax and the discount allowed is in conformity

with the normal business practices;

the open market price;

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Taxation Management FIN 623

(d) in case of imported goods, the value determined under section 25 of the Customs Act, including

the amount of customs-duties and central excise duty levied hereon;

(e) in case where there is sufficient reason to believe that the value of a supply has not been correctly

declared in the invoice, the value determined by the Valuation Committee comprising

representatives of trade and the Sales Tax Department constituted by the Collector ; and

(f) in case the goods other than taxable goods are Supplied to a registered person for processing, the

value of supply of such processed goods shall mean the price excluding the amount of sales tax

which such goods will fetch on sale in the market;

Provided that, where the Central Board of Revenue deems it necessary, it may, by notification

in the official Gazette, fix the value of any taxable supplies or class of supplies and for that

purpose fix different values for different classes or description of same type of supplies:

Provided further that where the value at which the supply is made is higher than the value fixed

by the Central Board of Revenue, the value of goods shall, unless otherwise directed by the

Board, be value at which the supply is made;

(g) in case of a taxable supply, with reference to retail tax, the price of taxable goods excluding the

amount of retail tax, which a supplier will charge at the time of making taxable supply by him, or

such other price as the Board may, by a notification in the Official Gazette, specify.

(47) "wholesaler" includes a dealer and means any person who carries on, whether regularly or otherwise,

the business of buying and selling goods by wholesale or of supplying or distributing goods, directly or

indirectly, by wholesale for cash or deferred payment or for commission or other valuable consideration or

stores such goods belonging to others as an agent for the purpose of sale; and includes a person supplying

taxable goods to a person and a person who in addition to making retail supplies is engaged in wholesale

business;

(48) "zero - rated supply" means a taxable supply which is charged to tax at the rate of zero per cent

under section 4

Scope of the Tax:

Subject to this act, sales tax shall be charged, levied and paid at the rate of 15 % of the value of:

taxable supplies made by a registered person in the course or furtherance or any taxable activity

carried on by him;

goods imported into Pakistan

Taxable supplies specified in third schedule shall be charge to tax at the rate of 15% of the retail

price.

Liability to pay tax shall be:

· In the case of supply of goods, of the person making the supply and

· In the case of goods, imported into Pakistan, of the person importing the goods

However federal Government may by notification specify the goods in respect of which the liability

to pay tax shall be of the person receiving the supply

Retail Tax

· Under section 3AA, the retailer shall pay retail tax at the rate specified in section 3.

· The retail tax shall be charged, collected and paid in such manner and at such higher or lower rate or

rates as may be specified in the said notification.

Zero Rating Sec. 4

· Notwithstanding the provisions of section 3, the following goods shall be charged to tax at the rate of

zero per cent:

(a) goods exported, or the goods specified in the5th schedule

(b) 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; and

Levy and collection of tax on specified goods on value addition

(1)

Notwithstanding anything contained in this Act or the rules made there under, the Federal

Government may specify, by notification in the official gazette, that sales tax chargeable on the

supply of goods of such description or class shall, with such limitations or restrictions as may be

prescribed, be levied and collected on the difference between the value of supply for which the

goods are acquired and the value of supply for which the goods, either in the same state or on

further manufacture, are supplied.

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Taxation Management FIN 623

(2)

Notwithstanding anything contained in this Act or the rules made there under, the Federal

Government may, by notification in the official Gazette, and subject to the conditions, limitations,

restrictions and procedure mentioned therein, specify the minimum value addition required to be

declared by certain persons or categories of persons, for supply of goods of such description, or

class as may be prescribed, and to waive the requirement of audit or scrutiny of records if such

minimum value addition is declared.

Taxable Supplies--defined in section 2 (41)

Supply--defined in section 2 (33)

Taxable Goods--defined in section 2 (39)

Exempt Supplies--defined in section 2 (11): means a supply which is exempt from tax under section

Retailer--defined in section 228

Registered person--defined in section 225

Registration Section 14:

· Persons required to get registration subject to sales tax rules

· Under this Act, registration will be required for such persons and be regulated in such manner and

subject to rules as the Board may, by notification in the official Gazette, prescribe.

Requirement of registration:

(1) The following persons engaged in making of taxable supplies in Pakistan (including zero-rated

supplies) in the course or furtherance of any taxable activity carried on by them, if not already

registered, are required to be registered under this Act, namely:

(i) a manufacturer whose annual turnover from taxable supplies made in any period during

the last twelve months ending any tax period exceeds two and half million rupees;

(ii) a retailer whose value of supplies in any period during the last twelve months ending any

tax period exceeds twenty million rupees;

(iii) an importer; and

(iv) a wholesaler (including dealer) and distributor:

· Provided that buyers or importers of taxable plant and machinery who intend to make taxable supplies

in due course and wish to claim any credit or refund of tax paid on the said plant and machinery shall

also be required to be registered under this Act.

De-Registration, Black listing and Suspension of Registration Section 21

(1) The Board or any officer, authorized in this behalf, may subject to the rules, de-register a registered

person or such class of registered persons not required to be registered under this Act.

(2) Notwithstanding anything contained in this Act, in cases where the Collector is satisfied that a

registered person is found to have issued fake invoices, or has otherwise committed tax fraud, he may

blacklist such person or suspend his registration in accordance with such procedure as the Board may,

by notification in the official Gazette, prescribe.

Solution: Sales tax liability of M/S WW brothers

Particulars

Value of Supplies

Rate

Sales tax

Out put tax

4,500,000

15%

675,000

Input tax

1,000,000

15%

(150,000)

Input tax on dying

300,000

15%

(45,000)

Subtract total input tax

(195,000)

Sales Tax Payable

(675,000 - 195,000)

Rs.480,000

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