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Taxation Management ­ FIN 623
VU
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
(c) possession of taxable goods held immediately before a person ceases to be a registered person:
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:
a
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;
(c) in case where for any special nature of transaction it is difficult to ascertain the value of a supply,
the open market price;
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(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
(c) such other goods as the Federal Government may, by Notification specify:
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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(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
13
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
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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Table of Contents:
  1. AN OVERVIEW OF TAXATION
  2. What is Fiscal Policy, Canons of Taxation
  3. Type of Taxes, Taxation Management
  4. BASIC FEATURES OF INCOME TAX
  5. STATUTORY DEFINITIONS
  6. IMPORTANT DEFINITIONS
  7. DETERMINATION OF LEGAL STATUS OF A PERSON
  8. HEADS OF INCOME
  9. Rules to Prevent Double Derivation of Income and Double Deductions
  10. Agricultural Income
  11. Computation of Income, partly Agricultural,
  12. Foreign Government Officials
  13. Exemptions and Tax Concessions
  14. RESIDENTIAL STATUS & TAXATION 1
  15. RESIDENTIAL STATUS & TAXATION 2
  16. Important Points Regarding Income
  17. Geographical Source of Income
  18. Taxation of Foreign-Source Income of Residents
  19. Exercises on Determination of Income 1
  20. Exercises on Determination of Income 2
  21. SALARY AND ITS COMPUTATION
  22. Definition of Salary
  23. Significant points regarding Salary
  24. Tax credits on Charitable Donations
  25. Investment in Shares
  26. SALARY AND ITS COMPUTATION EXERCISES 1
  27. SALARY AND ITS COMPUTATION EXERCISES 2
  28. SALARY AND ITS COMPUTATION EXERCISES 3
  29. Tax treatment of Gratuity
  30. Gratuity Exercise
  31. PROVIDENT FUND
  32. Exemptions on Business income, Treatment of Speculation Business
  33. Deductions Allowed & Not Allowed
  34. Deductions: Special Provisions, Depreciation
  35. Methods of Accounting
  36. Taxation of Resident Company
  37. Taxation of Companies: Exercises
  38. Computation of Capital Gain
  39. Disposals Not Chargeable To Tax
  40. TAX RETURNS & ASSESSMENT OF INCOME UNIVERSAL SELF ASSESSMENT SCHEME
  41. Normal Assessment, USAS, Provisional Assessment, Best Judgment Assessment
  42. ADVANCE TAX COLLECTION & RECOVERY OF TAX PENALTIES & PROSECUTION
  43. What is Value Added Tax (VAT)?
  44. SALES TAX
  45. SALES TAX RETURNS