sales tax

Question 1

Supplies

Answer 1

Definition The term supply is defined in section 2(33) of the Act in the following way:
Supply means “A sale or other transfer of the right to dispose of goods as owner, including such
sale or transfer under a hire purchase agreement and also includes”
putting to private, business or non-business use of goods produced or manufactured in the
course of taxable activity for purposes other than those of making a taxable supply;
auction or disposal of goods to satisfy a debt owed by a person;
possession of taxable goods held immediately before a person ceases to be a registered
person;
in case of manufacture of goods belonging to another person, the transfer or delivery of such
goods to the owner or to a person nominated by him; and
Production, transmission and distribution of electricity
Provided that the Board with approval of the Federal Minister Incharge, may by notification in the
official Gazette, specify such other transactions which shall or shall not constitute supply.

Question 2

Taxable Supplies

Answer 2

taxable supply‘ means a
supply of taxable goods
made by an importer,
manufacturer,
wholesaler (including
dealer), distributor or
retailer other than
exempt supply (u/s 13)
and includes a zerorated supply (u/s 4);

Question 3

Exempt supply

Answer 3

Exempt supply‘ means a
supply which is exempt
from tax (u/s 13);

Question 4

Exempt supply

Answer 4

Exempt supply‘ means a
supply which is exempt
from tax (u/s 13);

Question 5

Zero Rated Supplies

Answer 5

Zero-rated supply means
taxable supply which is
charged to tax at the rate
of 0%.(u/s 4)

Question 6

Exempt supplies

Answer 6

Definition
“Exempt supply” means a supply which is exempt from tax under section 13. [Section 2(11) of the
Sales Tax Act, 1990)
Section 13 stipulates that following goods are exempt from levy of sales tax:
 Supply or import of goods listed in sixth schedule
 Goods specified by Federal Government through its SROs to the extents and from the date
specified therein
The sixth schedule includes a list of items on which no sales tax is levied

Question 7

Zero rated supplies

Answer 7

Definition
The term “Zero rated supplies” is elaborated in section 2(48) of the Act in the following manner:
“Zero-rated supply” means a taxable supply which is charged to tax at the rate of zero per cent
under section 4.
Section 4 of the Act elucidates following items which are chargeable to tax at the rate of zero per
cent:
a. Goods exported, or the goods specified in the Fifth 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;
c. such other goods, as the Federal Government may specify by notification in the official
Gazette, whenever circumstances exist to take immediate action for the purposes of national
security, natural disaster, national food security in emergency situations and implementation
of bilateral and multilateral agreements:
Provided that nothing in this section shall apply in respect of a supply of goods which –
(i) are exported, but have been or are intended to be re-imported into Pakistan; or
(ii) have been entered for export under Section 131 of the Customs Act, 1969, but are
not exported; or
(iii) have been exported to a country specified by the Federal Government, by Notification
in the official Gazette
Provided further that the Federal Government may by a notification in the official Gazette,
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

Question 8

zero rated supply

Answer 8

4. Zero rating.—
   The following goods shall be charged to tax at the rate of zero per cent:–
   (a) goods exported or specified in the Fifth Schedule;
   (b) supply of stores/provisions for consumption aboard a conveyance
   proceeding to a destination outside Pakistan
   (c) such other goods, as the Federal Government may specify (by
   notification in the official Gazette), whenever circumstances exist to
   take immediate action for the purposes of national security, natural
   disaster, national food security in emergency situations and
   implementation of bilateral and multilateral agreements.
   However following goods shall not be charged to tax at the rate of zero
   per cent:
   (i) exports that are intended to be re-imported into Pakistan; or
   (ii) goods that have been entered for export but are not exported; or
   (iii) goods that have been exported to a country specified by the Federal
   Government:
   The Federal Government may restrict input tax credit for person making a
   zero-rated supply.

Question 9

Sales Tax

Answer 9

Input Tax
Sales tax paid on the
purchases of taxable supplies.

Output Tax
Sales tax charged on the
supply of taxable supplies.

Question 10

Output tax in relation to a registered
person, means-

Answer 10

Output tax is defined in section 2(20) in the following manner:
Definition
In relation to a registered person, means-
(i) tax levied under this Act on a supply of goods, made by the person;
(ii) tax levied under the Federal Excise Act, 2005 in sales tax mode as a duty of excise on the
manufacture or production of the goods, or the rendering or providing of the services, by the
person;
(iii) provincial sales tax levied on services rendered or provided by the person;
(iv) sales tax levied on the services rendered or provided by the person under Islamabad
Capital Territory (Tax on Services) Ordinance, 2001 (XLII of 2001);

sir
Output tax in relation to a registered
person, means-
(i) tax levied on a supply of goods made by
the person;
(ii) tax charged under Federal Excise Act in
sales tax mode on: production of the
goods, or providing of the services, by
the person;
(iii) sales tax levied on the services provided
by the person [under Islamabad Capital
Territory (Tax on Services)
Ordinance,200l (XLII of 200l)]

Question 11

Supply means

Answer 11

Supply means a sale or transfer of the right to dispose of goods as owner,
including sale under a hire purchase agreement, and also includes –
(a) putting to: private, business or non-business use of goods produced
during taxable activity;
(b) auction or disposal of goods to satisfy a debt; and
(c) possession of taxable goods held immediately before de-registration.
(Possession of goods is assumed as sales).
(d) in case of manufacture of goods belonging to another person, the
transfer or delivery of such goods to the owner or to a person
nominated by him.
The Board with the approval of Federal Minister in-charge may specify
other transactions as supply

Question 12

Goods two types

Goods

Taxable goods

Answer 12

Goods
Goods include every kind of
movable property other than
actionable claims, money, stocks,
shares and securities;

Taxable goods
Taxable goods means all goods
other than those which have been
exempted under section 13;
Board with approval of the Federal Minister In-charge is empowered to
prohibit registered persons from supplying taxable goods to specified
un-registered persons.

Question 13

Taxable activity means

Answer 13

Taxable activity means economic activity carried on by a person whether
or not for profit, and includes—
(a) an activity carried on in the form of a business, trade or manufacture;
(b) an activity that involves the supply of goods, providing of services, or
both;
(c) a one-off adventure in the nature of a trade; and
(d) anything done during the commencement or termination of economic
activity, but does not include—
i. the service provided by an employee to an employer;
ii. an activity carried on as a private recreational hobby;

Question 14

Manufacture‘ or produce‘ includes –

Answer 14

Manufacture‘ or produce‘ includes –
(a) any process in which an article singly or in combination with other
articles, is:
I. either converted into another distinct article or product or
II. so changed, transformed or reshaped that it becomes capable of being
put to use differently and includes any process incidental or ancillary to
the completion of a manufactured product;
c) process of printing, publishing, lithography and engraving; and
d) process and operations of assembling, mixing, cutting, diluting,
bottling, packaging, repacking or preparation of goods in any other
manner;

Question 15

Cottage industry
Cottage industry means

Answer 15

Cottage industry means a manufacturing concern, which fulfils each of
following conditions, namely:-
(a) does not have an industrial gas or electricity connection;
(b) is located in a residential area;
(c) does not have a total labour force of more than ten workers; and
(d) annual turnover from all supplies does not exceed ten million rupees;

Question 16

Input tax in relation to a registered
person, means—

Answer 16

(a) tax levied on supply of goods
received by the person;
(b) tax levied on goods imported by the
person;
(c) tax levied under Federal Excise Act
in sales tax mode on goods/services
acquired by the person, and
(d) Provincial sales tax levied on
services rendered or provided to
the person:
(e) 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

Question 17

Treatment of supplies by cottage industry

Answer 17

Treatment of supplies by cottage industry
Local supplies of goods made by a cottage industry are exempt from
sales tax. [Sr. No. 3 of Table 2 of the Sixth Schedule to the Sales Tax Act,
1990]

Question 18

Wholesaler includes a dealer and means

Answer 18

Wholesaler includes a dealer and means
any person who carries on, whether
regularly or not, the business of:
▪ buying and selling goods by
wholesale or
▪ supplying goods, directly or
indirectly, by wholesale for cash or
deferred payment or for commission
or other valuable consideration
It also includes a person who:
▪ stores goods belonging to others as
an agent for the purpose of sale and
▪ supply taxable goods to a person
who deducts income tax at source
under the ITO, 2001;

Question 19

Retailer means a person

Answer 19

Retailer means a person, supplying goods
to general public for consumption:
A person combining the business of:
i. import and retail or
ii. manufacture with retail, shall:
▪ Notify and advertise wholesale
prices and retail prices separately.
▪ Declare the address of retail
outlets.

Question 20

Time of supply

Type of supply

Time of supply

Answer 20

Time of supply
Type of supply::: Time of supply
(a) A supply of goods::: The time at which the goods are delivered or made
available to the recipient of the supply
(b) A supply of goods under a hire
purchase agreement:::
The time at which the agreement is entered into
(c) Services::: Time at which the services are rendered or
provided

Question 21

If any part payment is received: for supply

Answer 21

If 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 exempt supply, it shall be accounted for in the return for the tax period
during which the exemption is withdrawn from such supply.

Question 22

scenario ; calue of supply

Answer 22

No. Scenario Value of supply
1 If consideration for a supply is fully or
partly in kind
Open market price of the supply excluding the amount of
tax
2 If supplier and recipient are associates and
supply is made at no consideration or at a
consideration lower than open market
price
Open market price of the supply excluding the amount of
tax
3 If taxable supply is made to general public
on installment basis (including surcharge)
Open market price of the supply excluding the amount of
tax
4 In case trade discount is provided The discounted price excluding the amount of tax.
Provided that tax invoice shows the discounted price and
the related tax and the discount allowed is in conformity
with normal business practices
5 In case of a special nature of transaction
where it is difficult to determine value of
supply
Open market price
6 In case of imported goods, (excluding those
specified in Third Schedule)
The value determined under Customs Act including
custom duty and excise duty charged on it

7 If there are sufficient reasons 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 Inland
Revenue constituted by the Commissioner
8 If goods other than taxable goods (exempt
goods) are supplied to a registered person
for processing
Market price of goods excluding the amount of tax
9 In case of manufacture of goods belonging
to another person
the actual consideration received by the manufacturer for
the value addition carried out on such goods
10 in case of supply of electricity by an
independent power producer or WAPDA
the amount received for energy purchase price;
excluding the amount received for capacity purchase
price, energy purchase price premium, excess bonus
11 in case of supply of electric power and gas
by a distribution company
the total amount billed including price of electricity and
natural gas, rent, commission and all duties and taxes
local, provincial and federal but excluding the late
payment surcharge and sales tax

12 If a person purchase used vehicle
from general public (on which tax
has already been paid on import
or manufacturing), and sell it in
the open market after making
value addition
the difference between sale and purchase price
of vehicle on the basis of prescribed valuation
method
13 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, or such
other price as the Board may specify

The Board may fix the value of any imported goods or taxable supplies and may fix
different values for different classes of same type of goods.
If the import/supply is made at a higher value than fixed by Board, the value shall be the
actual price.

Question 23

Scope of Sales Tax

Answer 23

Scope of Tax
Normal Sales Tax
3rd Schedule items
10th Schedule items
Tax on supply to
CNG stations
Tax on Retailers
13th Schedule item

Question 24

normal rate of sales tax

Answer 24

Normal rate of sales tax
 Sales tax @ 18% is charged, levied and paid on the value of:
(i) taxable supplies made by a registered person in the course or furtherance of any
taxable activity carried on by him; and
(ii) goods imported into Pakistan irrespective of their final destinations in territories of
Pakistan.
 Where the taxable supplies are made to a person who has not obtained registration number
or he is not an active taxpayer, there shall be charged, levied and paid a further tax at the
rate of 3% of the value in addition to the normal rate of 18%.
 However Federal Government may, by notification in the official Gazette specify the taxable
supplies in respect of which the further tax shall not be charged, levied and paid

Question 25

further tax 3% is not charged

Answer 25

 SRO 648(1)/2013 dated 9th July, 2013 provides following list of persons on which this further
tax @ 3% is not charged, levied or paid on the taxable supplies of:
(i) Electricity energy supplied to domestic and agricultural consumers.
(ii) Natural gas supplied to domestic consumers and CNG stations.
(iii) Motor oil, diesel oil, jet fuel, kerosene oil and fuel oil.
(iv) Goods sold by the retailers to end customers.
(v) Supply of goods directly to end customers including food, beverages, fertilizers and
vehicles.
(vi) Items listed in Third Schedule to the Sales Tax Act, 1990.
(vii) Second hand worn clothing and other worn articles falling under PCT heading
6309.0000.
(viii) Supplies by steel-melters, re-rollers and ship breakers
(ix) Supplies covered under the Fifth Schedule to the Sales Tax Act, 1990.
(x) Supplies made to Government, semi-government and statutory regulatory bodies.
(xi) Supply of white crystalline sugar (PCT heading 1701.9910 and 1701.9920).
(xii) Supply of foam or spring mattresses and other foam products for household use
(xiii) Supplies by steel sector and edible oil sector

Question 26

Tax on taxable supplies specified in third schedule [Sec 3(2)(a)]

Answer 26

Tax on taxable supplies specified in third schedule [Sec 3(2)(a)]
 Taxable supplies and import of goods specified in the Third Schedule shall be charged to
tax at the rate of eighteen per cent of the retail price or in case such supplies or imports are
also specified in the Eighth Schedule, at the rates specified therein.
 The manufacturer or the importer shall legibly, prominently and indelibly print or emboss
retail price along with the amount of sales tax on the packet, container, package, cover or
label etc.
 Board, may exclude from or include into said schedule any taxable supply by notification in
the official Gazette

Question 27

 Goods specified in the third schedule are tax on taxable supplies

Answer 27

S.N Description S.N Description
1. Fruit Juices and Vegetable Juices 11. Toilet Soap
2. Detergents 12. Shampoo
3. Toothpaste 13. Milky Drinks
4. Shaving Cream 14. Powder Drinks
5. Perfumery and Cosmetics 15. Toilet paper & tissue paper
6. Ice Cream 16. Spices sold in retail packing bearing
brand names and trademarks.
7. Tea 17. Cement sold in retail packing
8. Aerated Waters or Beverages 18. Shoe polish and shoe cream
9. Syrups and Squashes 19. Mineral / Bottled water
10. Cigarettes 20. Other household and specified items

 Federal Government may, subject to such conditions and restrictions as it may impose, by
notification in the official Gazette, declare that the tax on goods specified in the Third
Schedule shall be collected and paid at such higher rate or rates on the retail price thereof,
as may be specified in the said notification

Question 28

 As per SRO 297(I)/2023 dated 08 March 2023 Federal Government has directed to charge
sales tax @ 25% on import and subsequent supply of following third schedule goods:

Answer 28

S.N Imported goods/Articles Tax Rate
1. Aerated water or beverages 25%
2. Cigarettes, Cigars and e-cigarettes 25%
3. Cosmetic and shaving items 25%
4. Tissue papers 25%
5. Household articles including crockery, kitchenware and
tableware
25%
6. Home appliances in CBU 25%
7. Ice cream 25%
8. Fruit and vegetable juices 25%
9. Mattress and sleeping bags 25%
10. Shampoos 25

Question 29

Tax on taxable supplies specified in 10th
schedule

Answer 29

Tax on taxable supplies specified in 10th
schedule

Tax shall be levied
(a) on the production capacity of plant, machinery
(b) on fixed basis from any person.

Tax on bricks and cement or concrete blocks

Question 30

Tax on supply to CNG stations

Answer 30

3.8 Tax on supply to CNG stations
 In case of supply of natural gas to CNG stations, the Gas Transmission and Distribution
Company shall charge sales tax from the CNG stations at the rate of 18% on the value of
supply to the CNG consumers.
 Value for the purpose of levy of sales tax shall include price of natural gas, charges, rents,
commissions and all local, provincial and Federal duties and taxes but excluding the amount
of sales tax

Question 31

Tax on Retailers

Answer 31

 Tier-I category retailers shall pay tax in normal manner at standard rate of 18%.
 Tax shall be charged from retailers other than those falling in Tier-1, through their monthly
electricity bills in the following manner:
(i) Sales tax @ 5% where the monthly bill amount does not exceed Rs 20,000.
(ii) Sales tax @ 7.5% where the monthly bill amount exceeds Rs 20,000.
The electricity supplier shall deposit the amount so collected directly without adjusting against
his input tax.
The above tax on other than tier-I retailers is other than normal tax of 18%, further tax of 3%
and extra tax.

Question 32

Goods specified in the 13th Schedule

Answer 32

Tax on steel products/ship plates
The minimum production for a month shall be determined on the basis of a
single or more inputs as used in the production process. If minimum
production exceeds the actual supplies (sales) then minimum production
shall be treated as quantity supplied for charging tax

Question 33

Extra tax
Federal Government may collect tax at such extra rate or amoun

Answer 33

The Federal Government is empowered to levy and collect tax at such extra rate or amount not
exceeding 18% in addition to the amount of sales tax or retail tax, levied under Sales Tax Act,
1990. This tax shall be levied on the value of such goods or class of goods, on such persons or
class of persons, in such mode, manner and at time and subject to such conditions and limitations
as may be prescribed.