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Taxation Managment

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Taxation Management ­ FIN 623
VU
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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Taxation Management ­ FIN 623
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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;
(c) levied under the Sales Tax Act, 1990 of Pakistan as adapted in the State of Azad Jammu and
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
(c) process and operations of assembling, mixing, cutting, diluting, bottling, packaging, repacking or
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
(c) any person, firm or company which owns, holds, claims or uses any patent, proprietary or other
right to goods being manufactured, whether in his or its name, or on his or its behalf, as the case
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Taxation Management ­ FIN 623
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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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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