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SALE TAX ACT ,1990

FATIMA FARHEEN ROLL NO :036

INTRODUCTION TO SALE TAX

The Sales Tax was imposed as a federal Tax in 1948 through the general Sales Tax Act ,1948

Previously it was a provincial Tax and provinces of Punjab and Sindh were charging it.


The Sale Tax Act ,1951The Sales Tax ,1951 introduced a system of licensed manufacturers and wholesalers.Under this Act the Sale Tax was imposed on the sale of locally produced goods and on the import of imported goods.However, the licensed persons were allowed to sell the goods to each other without the payment of sales tax.


The Sales Tax Act ,1951Under this Act Sale Tax was administered by the Central Excises Department Till 1981 Sale Tax was levied on excisable goods ,however in April 1981 it was also extended to non-excisable goods.

INTRODUCTION TO SALE TAXSALES TAX ACT,1990The finance Act ,1990 introduced major changes in the law of sales taxIt substituted the whole of the provisions of sales tax act ,1951 and renamed the same as The Sales Tax Act ,1990.The Sales Tax Act 1990,is effective since 01-11-1990.The Sales Tax Act,1990 empowers the Federal Government to levy the sales tax on the sales ,importation ,exportation ,production, manufacture or consumption of goods.

THE SALES TAX ACT,1990Currently the Sales Tax Act consists upon the following chapters

CHAPTER NO. SECTIONS CHAPTER TITLE

I 1 to 2 Preliminary

II 3 to 13 Scope and Payment of Tax

III 14 to 21 Registration

IV 22 to 25 Book Keeping and Invoicing Requirement

V 26 to 29 Returns

VI 30 to 32A Appointment of Officers of Sales Tax and their Powers

VII 33 to 40B Offences And Penalties

VIII 45 to 47A Appeals

XI 48 Recovery Of Arrears of Tax

X 49 to 75 Miscellaneous

THE SALES TAX ACT,1990Besides the above- referred chapters, the Sales Tax Act ,1990 originally contained seven(7) schedules..Currently ,the following schedules are Active and enforceable:THIRD SCHEDULE: which specifies the goods in respect of which the tax is levied on the retail price fixed by the manufacturer.FIFTH SCHEDULE: which specifies the goods which are taxable at the rate of zero percentSIXTH SCHEDULE: which contains the list of such goods that are exempt from the Sales Tax.

DEFINATIONS

BOARD [2(4)]

Board means the Federal Board of Revenue (FBR) established under section 3 of the Federal Board of

Revenue Act,2007.It is the highest tax collecting authority in Pakistan. It regulates all Federal Taxes such as direct taxes (e.g. income tax) and indirect

taxes (e.g. sales tax, customs duty).Board is appointed by the Federal Government.

COMPANY [2(5A)]Company means an organization which falls under any of the following categories: A Company as defined by the Company Ordinance ,1984; A Body corporate formed by or under any law in force in

Pakistan; A modaraba; A Body incorporated by or under the law of country outside

Pakistan relating to incorporation of companies in that country;

A Trust A registered co-operative society, a finance society or any

other society ; A foreign association ,whether incorporated or not ,which

the Board has declared as company for Income Tax Ordinance ,2001

DUE DATE[2(9)]

In relation to the furnishing of sales tax return (due date) means the 15th day of the month next following the end of the ‘tax period'. The Board may specify

any other date as due date.

TAX PERIOD

Is a period of one month. The Federal Government may notify some other period as tax period.

EXEMPT SUPPLY

It means a supply ,which is exempted from the levy of Sales Tax by the Federal Government by giving a

notification in the Official Gazette. Section 13 of the Sales Tax ACT ,1990 authorizes the Federal

Government to do so.

GOODS‘Goods’ means every kind of movable property excluding the following:Actionable claims;Money;Stocks;Shares;Securities;

IMPORTER[2(13)]

Any person who imports any goods into Pakistan is termed as ‘importer’.

INPUT TAX[2(14)]In relation to a registered person, the ‘input tax’ means; The tax levied under Sales Tax Act ,1990 on the

supply of goods to the person; The tax levied under Sales Act,1990 on import of

goods by the person; In relation to goods or services acquired by the

person ,excise duty levied under Federal Excise Act,2005 in sale tax mode on the manufacture or production of goods, or rendering or providing of services;

INPUT TAX[2(14)] The Provincial Sales Tax levied on services

rendered or provided to the person; The tax levied under Sales tax Act,1990 of Pkistan

as adapted in the State of Azad Jammu and Kashmir on the supply of goods received by that person.

RIDA ASHRAFROLL NO : 01 (M)

OUTPUT TAXIn relation to a registered person output tax means the following taxes and duties payable by that person: Tax levied under the Sales Tax Act on supply of

goods made by that person. Excise duty levied under the Federal Excise Act,

2005 in sales tax mode on manufacture or production of goods or the rendering or providing of the services by the persons.

The Provincial Sales Tax levied on services rendered or provided by the person.

SALES TAXSales Tax means:A tax imposed by the government at the

point of sale on retail goods and services.

The tax, additional tax or default surcharge levied under the Sales Tax Act, 1990.

A fine, penalty or fee imposed or charged under the Sales Tax Act., 1990.

Any other sum payable under the provisions of Sales Tax Act, 1990.

PROVINCIAL SALES TAX

Provincial sales tax means the tax levied under the provincial laws or laws relating to Islamabad Capital Territory, which are declared by the Federal Government to be provincial sales tax for the purpose of input tax.

RETAILERRetailer means a person supplying goods to general public for the purpose of consumption. Any person who combines the business of import, manufacturing or production with retail shall have to observe the following conditions:I. He shall notify and advertise wholesale prices

and retail prices separately.II. He shall declare the addressess of his retail

outlets.

RETAIL PRICEIt means a price fixed by the manufacturer, inclusive of all duties, charges and taxes at which any particular brand or variety of any article should be sold to the general consumer. When more than one such price is fixed for the

same brand, the highest of such prices shall be taken as retail price.

The law requires that the retail price and the amount of sales tax shall be printed on each article of the goods.

RETURNReturn means any return required to be furnished under Chapter-V of the Sales Tax Act. The sales tax department may require the filing of following different types of returns:i. Sales tax return (u/s 26)ii. Returns under Sales Tax Special Procedures

Rules.iii. Special return (u/s 27)iv. Final return (u/s 28)

SPECIAL RETURN

• The collector may require any person whether, registered or not, to furnish a return (whether on his own behalf or as an agent or trustee) in a prescribed form and such person shall furnish the return not later than the date specified in this regard.

FINAL RETURNIf a person applies for de-registration in terms of section 28, he shall before such de-registration, furnish a final return to the Collector in the specified form in such manner and at such time as directed by the Collector].

TAX FRAUDIt means knowingly, dishonestly or fraudulently doing or omitting any act in contravention of any provision of the Sales Tax Act, with the intention of:o Understanding the tax liability.o Underpaying the tax liability for two

consecutive tax periods.o Overstating the entitlement of tax credit or tax

refund to cause loss of tax.o Falsifying or causing falsification the sales tax

invoices.

Tehreem Fatima

048

Tax fraud[2(37)]It means knowingly, dishonestly or fraudulently doing or omitting any act in contravention of any provision of the sales tax act with the intention of :1. Understanding the tax liability2. Underpaying the tax liability for two consecutive

tax periods 3. Overstating the entitlement of tax credit or tax

refund to cause loss of tax 4. Falsifying or causing falsification the sales tax

invoices

Taxable goods[2(39)]• It means all goods other than those,

which have been exempted by the federal government under section 13 of the sales tax act 1990

Tax invoice [2(40)]• It means a document required to be

issued under section 23 of the sales tax act ,1990. section 23 requires that every registered person while making a taxable supply ,shall issue tax invoice the invoice shall contain a following particulars

• Serial number• Name address and registration number of the

supplier• Name address and registration number of the

recipient• Date of issue of the invoice• Description and quantity of goods• Value before sales tax• Amount of sales tax • Value inclusive of sales tax

Only one tax invoice shall be issued for a taxable supply upon loss of original tax invoice a copy clearly marked as “copy only ” can be issued

Taxable supply• It means supply of taxable goods other

than those which have been exempted by the federal government under section 13 of the sales tax act , 1990. it also includes a supply of goods chargeable to tax at the rate of zero percent under section 4 of the sales tax , 1990.

A supply may be made by any of the following persons:

• Importer • Wholesaler

(including dealer)

• manufacturer

• Retailer

Distributor

Tax period [2(43)]• It is period of one month. The federal

government may notify some other period as tax period.

Time of supply‘Time of supply’ is defined separately

supply of goods rendering of

services

• Supply of goods ‘time of supply’ in relation to a supply of goods (other than under hire purchase agreement) means the time which is earlier of the following1. The time at which the goods are

delivered or made available to recipient of the supply ; or

2. The time when any payment is received by the supplier in respect of that supply.

2. The time when any payment is received by the supplier in respect of that supply

• Supply under hire purchase agreement where goods are supplied under hire purchase agreement , time of supply means the time at which agreement is entered into .• Rendering of services ‘time of supply’ in relation to services means the time at which the services are rendered or provided

Zero rated supply • It means a supply, which is charged to

tax at the rate of zero percent under section 4 of the sales tax, act 1990.

• According to section 4, the following goods charged to tax at the rate of zero percent :

• Goods exported out of Pakistan• Goods specified in the fifth schedule• Supply of stores and provisions for

consumption aboard a conveyance proceeding to a destination outside Pakistan

• Such other goods of the federal government may notify and

• Such other goods as may be specified by the board through a general order as are supplied to registered persons engaged in manufacture and supply of zero rated goods

Difference Between ‘Exempt Supply’ And ‘Zero-Rated SupplySr.

No Point of Distinction Exempt Supply Zero-Rated Supply

1 Taxability Not Taxable Taxable

2 Registration under Sales Tax Not Required Required

3 Credit of Input Tax Not Allowed Allowed

4

Maintenance of Records under Sales Tax Act Not Required Compulsory

5 Filing of Returns under the Sales Tax Act Not Required Required

6 ExamplesItems of daily use e.g. pulses etc Export items

Summary of Important Points

Sales tax is a multi-stage taxThe rate of tax is 17%It is also known as Value Added Tax (VAT)Value addition can be in:

a) Physical manner + Expensesb) Expenses

The Ultimate burden will be on the end user

Input Tax Output Tax Net Tax

Manufacturer:

Purchases of Material 2000 ---------

+ Labor Cost 500

OH cost 500 1000

Total Cost 3000

Margin of Profit 1000

Price 4000 680 680


Wholesaler:

Purchases 4000 680

OH cost 1000

Total Cost 5000


Price 7000 1190 510


Retailer:

Purchases 7000 1190

OH cost 1500

Total Cost 8500


Price 10,000 1700 510


Customer:

10,000 1700

Sales Tax 1700

Total Price Paid 11,700 ---------- 1700

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