1/15/2022

Supplies

Taxable Supplies Exempt Supplies Zero Rated Supplies

taxable supply‘ means a exempt supply‘ means a zero-rated supply means

supply of taxable goods supply which is exempt taxable supply which is
made by an importer, from tax (u/s 13); charged to tax at the rate
manufacturer, of 0%.(u/s 4)
wholesaler (including
dealer), distributor or
retailer other than
exempt supply (u/s 13)
and includes a zero-
rated supply (u/s 4);

1
 1/15/2022

13. Exemption
Supply of goods or imports specified in the 6th Schedule shall be exempt
from tax subject to conditions specified by Federal Government. However
the Federal Government may, 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, exempt any taxable supplies or
import from whole or any part of tax.
The exemptions may be allowed from any previous date
The Board shall place before National Assembly all notifications issued in a
financial year.
Note: Sales made by cottage industry are exempt from tax.

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.

2
 1/15/2022

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.

Sales Tax

Input Tax Output Tax

Sales tax paid on the Sales tax charged on the

purchases of taxable supplies. supply of taxable supplies.

3
 1/15/2022

Supplies A B C D E F Consumer
Value of Supply 100 120 150 200 250 300 500
Exclusive of ST
Sales Tax 17 20.4 25.5 34 42.5 51 85
Output Tax
Price inclusive of 117 140.4 175.5 234 292.5 351 585
Sales Tax

Purchases A B C D E F Consumer
Value of Supply 50 100 120 150 200 250 300
Exclusive of ST
Sales Tax 0 17 20.4 25.5 34 42.5 51
Input Tax
Price inclusive of 50 117 140.4 175.5 234 292.5 351
Sales Tax

Output - Input 17 3.4 5.1 8.5 8.5 8.5 51

Supplies A B C D E F Consumer
Value of Supply 100 120 150 200 250 300 500
Exclusive of ST
Sales Tax 85 85 85 85 85 85 85
Output Tax
Price inclusive of 185 205 235 285 335 385 585
Sales Tax

Purchases A B C D E F Consumer
Value of Supply 50 100 120 150 200 250 300
Exclusive of ST
Sales Tax 0 85 85 85 85 85 85
Input Tax
Price inclusive of 50 185 205 235 285 335 385
Sales Tax

Output - Input 85 0 0 0 0 0 0

4
 1/15/2022

Input tax in relation to a registered Output tax in relation to a registered

person, means— person, means-
(a) tax levied on supply of goods (i) tax levied on a supply of goods made by
received by the person; the person;
(b) tax levied on goods imported by the (ii) tax charged under Federal Excise Act in
person; sales tax mode on: production of the
(c) tax levied under Federal Excise Act goods, or providing of the services, by
in sales tax mode on goods/services the person;
acquired by the person, and (iii) sales tax levied on the services provided
(d) Provincial sales tax levied on by the person [under Islamabad Capital
services rendered or provided to Territory (Tax on Services)
the person: Ordinance,200l (XLII of 200l)].
(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;

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

5
 1/15/2022

Taxable goods means all goods other than exempt (u/s 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;

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;

6
 1/15/2022

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 10 workers; and
(d) annual turnover from all supplies does not exceed Rs. 10 million.
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:
iii. notify and advertise wholesale prices and retail prices separately,
iv. and declare the address of retail outlets.

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;

7
 1/15/2022

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 The time at which the agreement is entered into
purchase agreement
(c) Services Time at which the services are rendered or
provided
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.

No. Scenario Value of supply

1 If consideration for a supply is fully or Open market price of the supply excluding the amount of
partly in kind tax
2 If supplier and recipient are associates and Open market price of the supply excluding the amount of
supply is made at no consideration or at a tax
consideration lower than open market
price
3 If taxable supply is made to general public Open market price of the supply excluding the amount of
on installment basis (including surcharge) 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 Open market price
where it is difficult to determine value of
supply
6 In case of imported goods, (excluding those The value determined under Customs Act including
specified in Third Schedule) custom duty and excise duty charged on it

8
 1/15/2022

7 If there are sufficient reasons to believe The value determined by the Valuation Committee
that the value of a supply has not been comprising representatives of trade and the Inland
correctly declared in the invoice Revenue constituted by the Commissioner
8 If goods other than taxable goods (exempt Market price of goods excluding the amount of tax
goods) are supplied to a registered person
for processing
9 In case of manufacture of goods belonging the actual consideration received by the manufacturer for
to another person the value addition carried out on such goods
10 in case of supply of electricity by an the amount received for energy purchase price;
independent power producer or WAPDA excluding the amount received for capacity purchase
price, energy purchase price premium, excess bonus
11 in case of supply of electric power and gas the total amount billed including price of electricity and
by a distribution company 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 the difference between sale and purchase price
from general public (on which tax of vehicle on the basis of prescribed valuation
has already been paid on import method
or manufacturing), and sell it in
the open market after making
value addition
13 In case of a taxable supply, with the price of taxable goods excluding the amount
reference to retail tax 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.

9
 1/15/2022

3. Scope of tax.
Normal rate of sales tax Sales tax shall be charged at the rate of 17% of the
value of–
(a) taxable supplies made by a registered person during any taxable activity
carried on by him; and
(b) goods imported into Pakistan, irrespective of their final destination in
territories of Pakistan.
Further tax
Where taxable supplies are made to a person who has not obtained
registration number, a further tax shall be charged at the rate of 3% of the
value in addition to 17%. Federal Government may specify supplies on
which the further tax shall not be charged.

An SRO provides following list of persons on ix. Supplies by steel melters, re-rollers
which this further tax of 3% is not chargeable: and ship breakers operating under
(i) Electricity energy supplied to domestic Chapter XI of Sales Tax Special
and agricultural consumers. Procedure Rules, 2007.
(ii) Natural gas supplied to domestic x. Supplies covered under the Fifth
consumers. Schedule to the Sales Tax Act, 1990.
(iii) Motor oil, diesel oil, jet fuel and fuel oil. xi. Supplies made to Government, semi-
(iv) Goods sold by the retailers to end government and statutory regulatory
customers. bodies.
(v) Supply of goods directly to end xii. Supply of white crystalline sugar.
customers including food, beverages,
fertilizers and vehicles.
(vi) Items listed in Third Schedule
(vii) Second hand worn clothing and other
worn articles falling under PCT heading
6309.0000.
(viii)Fertilizers

10
 1/15/2022

Capacity tax For goods specified Tax on taxable supplies specified in 3rd
in Tenth Schedule schedule
tax shall be levied ▪ For supplies and import of goods
(a) on the production capacity specified in Third Schedule tax shall
of plant, machinery be charged at 17% of the retail price.
(b) on fixed basis from any ▪ The retail price and sales tax shall be
person. legibly, prominently and indelibly
printed or embossed by the
Special rates of tax manufacturer or importer (in case of
Federal Government may imported goods), on each article,
prescribe any higher or lower packet, container, package, cover or
rate of tax for any class of label.
taxable goods. ▪ Federal Government can
exclude/include any goods from the
Third Schedule;

11
 1/15/2022

Extra tax
Federal Government may collect tax at such extra rate or amount, in
addition to the normal tax [under subsection (1) and sub-section (2)].
The tax charged here shall not exceed 17% of value of goods.
The Federal Government will also specify the mode, manner and time
of payment of tax.

Tax on supply to CNG stations

In case of supply of natural gas to CNG Stations, the Gas Transmission
Company shall charge Sale Tax at 17% of the value of supply to the
CNG consumers.

Tax on retailers
▪ Tier-1 category retailers shall pay tax in normal manner at rate of 17%.
▪ Tax shall be charged through monthly electricity bills from retailers
other than Tier-1.The rate will be:
▪ 5 % where the monthly bill is upto Rs. 20,000 and
▪ 7.5 % where the monthly bill exceeds Rs. 20,000 and the electricity
supplier shall deposit the amount collected directly.
▪ The above tax on other than Tier-1 retailers is other than normal tax of
17%, further tax of 3% and extra tax.

12
 1/15/2022

Tax on steel products/ship plates

Goods specified in the 13th Schedule
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.

Liability to pay sales tax

Situation Person liable to pay tax
In the case of supply of goods The person making the supply
In the case of goods imported into The person importing the goods
Pakistan
The Board, with the approval of Federal Minister in-charge, may specify goods where
person receiving supply is liable to pay the tax. [S.3 (3A)]

13
 1/15/2022

3B. Collection of excess sales tax etc.

A person who has collected any tax under misapprehension or otherwise
which:
▪ was not payable as tax or
▪ is in excess of the tax actually payable and the incidence has been
passed on the consumer, the person shall pay the tax to the Federal
Government. Amount payable to the Federal Government here shall be
considered as an arrear of tax and shall be recoverable accordingly.
Refund claim will not be admissible.
The burden of proof that the incidence of tax has or has not been passed
to the consumer shall be on the person collecting the tax.

Change in the rate of tax

If there is a change in the rate of tax-
1. a taxable supply made by a registered person is chargeable at the rate applicable at
the time of supply;
2. imported goods shall be chargeable at following rates-
Scenario Rate to be used
i) If the goods are entered for home The rate applicable on the date on which a
consumption goods declaration is presented
ii) If the goods are cleared from The rate applicable on the date on which a
warehouse goods declaration for clearance of such goods
is presented
Where goods declaration is presented in advance of the arrival of conveyance, the tax
shall be calculated at the rate applicable on the date the manifest of the conveyance is
delivered

14
 1/15/2022

6. Time and manner of payment.―

Time of payment of tax on imported goods
The tax on goods imported into Pakistan shall be paid at the same time at which
customs duty is payable. The provisions of collection of tax in Customs Act shall also
apply here.
Time of payment of tax on taxable supplies
The tax on taxable supplies made shall be paid by the registered person at time of
filing the return.
The Board may direct that the tax on certain supplies shall be paid in any other way
or time.
Mode/Manner of payment of tax
The tax on goods imported shall be paid in the same manner as if it is a customs duty
payable
The tax due on taxable supplies shall be paid by any of the following modes:-
(i) through deposit in a bank designated by the Board; and
(ii) through such other mode and manner specified by the Board.

7. Determination of tax liability.―

For determining tax liability of a registered person on taxable supplies made during a tax
period, the person shall be entitled to deduct input tax:
▪ paid or
▪ payable {creditors yet not paid}
▪ during the tax period for taxable supplies
▪ made or
▪ to be made {stock yet not sold}
▪ by him. The input tax will be deducted from the output tax, excluding the amount of
further tax (under sub-section (1A) of section 3), that is due in that tax period.
Where a registered person did not deduct input tax within the relevant period, he
may claim such tax in the return for any of the 6 succeeding tax periods.

15
 1/15/2022

Time of claim of input tax/ Conditions for allowing input

A registered person shall not be entitled to deduct input unless:
Situation Document required
a) In case of purchases He holds a tax invoice in his name and having his
made by him registration number in respect of such supply or in case of
supply of electricity or gas, a bill bearing his registration
number and the address where the connection is installed:
If the supplier has not declared such supply in his return or
he has not paid amount of tax due as indicated in his return
than input cannot be recorded.
a) In case of imports made He holds bill of entry or goods declaration in his name and
by him showing his sales tax registration number. It should be duly
cleared by the Custom authorities.
a) In case of goods He holds a treasury challan, in his name and bearing his
purchased in auction registration number, showing payment of sales tax.

8. Tax credit not allowed.—

(1) A registered person shall not be entitled to deduct input tax paid on-
(a) the goods or services used for any purpose other than for taxable supplies made by
him;
(b) any other goods or services specified by Federal Government;
(c) the goods on which extra amount of tax is paid in addition to normal tax at 17% [under
sub-section (5) of section 3].
(d) the goods/services on which sales tax has not been deposited in Government treasury
by the supplier;
(e) purchases, for which:
▪ a discrepancy is indicated by CREST or
▪ input tax is not verifiable in the supply chain;
(d)fake invoices;
(e)purchases made by a registered person who fails to furnish the information required by
the Board.
(f) goods and services not related to the taxable supplies made by the registered persons:
(g) goods and services acquired for personal or non-business consumption:

16
 1/15/2022

(h) goods used in immovable property, or permanently attached to immovable

property, such as building and construction materials, paints, electrical, pipes,
wires and cables, but excluding:
▪ pre-fabricated buildings
▪ good acquired for sales or re-sale
▪ good acquired for direct use in the production of taxable goods;
(i) vehicles specified in Customs Act, parts of such vehicles, electrical and gas
appliances, furniture, office equipment (excluding electronic cash registers), but
excluding goods acquired for sale/re-sale.

(j) services in respect of which input tax adjustment is barred under the provincial
sales tax law;
(k) import or purchase of agricultural machinery or equipment subject to sales tax at
the rate of 7%; and
(l) such goods and services which, at the time of filing of return by the buyer, have
not been declared by the supplier in his return or he has not paid the tax due as
indicated in his return.
(m) the input on goods or services relating to supplies made to un-registered
person, on pro-rata basis, for which sale invoices do not bear the NIC number or
NTN, of the recipient.

17
 1/15/2022

(2) If a registered person deals in taxable and non-taxable supplies, he can reclaim
only such proportion of the input as relates to taxable supplies.
(3) Only a registered person can deduct or reclaim input tax.
(6) The Board, with the approval of Federal Minister in-charge, may specify goods
which a registered person cannot supply to an un-registered person. {If he has made
the supply he will charge output tax but he cannot claim input tax}.

73. Certain transactions not admissible.—

(1) Payment for a transaction exceeding Rs. 50,000, excluding utility bill, shall be made
by a crossed cheque or other banking channel otherwise input will be disallowed.
Payment must be made from business bank account of buyer to business bank
account of the supplier. Bank account of both buyer and supplier should be declared
to Board at the time of registration/through change of particulars subsequently.
If above conditions are not fulfilled buyer will not be entitled to claim input tax.
Further supplier cannot claim input on amount not received in bank account.
Note:
1. Sec 73 is not applicable on registered person supplying goods to unregistered person.
However, supplier should deposit cash in his business bank account to claim input tax
2. Same party receivable and payable can be setoff if sales tax has been charged and
paid by both parties, and registered person has obtained approval of the
Commissioner before adjustments.
(2) The payment for credit transaction should be made within 180 days of issuance of
the tax invoice. If condition is not fulfilled buyer will not be entitled to claim input tax.

18
 1/15/2022

8A. Joint and several liability of registered persons in supply chain where tax
unpaid.–
Where a registered person receiving a taxable supply from another registered
person:
▪ is in the knowledge or
▪ has reasonable grounds to suspect that some or all of the tax in respect of that or
any previous or subsequent supply would go unpaid, the burden of proof will be on
department, such person as well as the person making supply shall be jointly and
severally liable for unpaid tax.
The Board may exempt any transactions from the ambit of this section.

8B.Adjustable input tax.–

(1) A registered person, other than public limited companies listed on Pakistan Stock Exchange, shall not be
allowed to adjust input in a tax period exceeding 90% of the output tax.
Excess input tax shall be carried forward to the next tax period, and shall be considered as input tax for
that period. The Board may prescribe the procedure for refund [(as mentioned in sub-section (2)
below]. [S. 10(1)]
Input tax on fixed assets/capital goods shall not be restricted to 90% of output.
The Board may exclude any persons from the ambit of above provision.
Where input tax is restricted up to 90% of output tax an adjustment or refund will be allowed to a
registered person.
For claiming the adjustment/refund the person should fulfill following conditions:–

Person Condition applicable

(i) If the registered person’s account The person should furnish a statement along
are subject to audit under with annual audited accounts certified by the
Companies Act, 2017 auditors
(ii) In case of other persons The person should fulfill the conditions and
restrictions specified by the Board

19