Author: Mrs. Anjum Shahnawaz

Section 2 of Sales Tax Act, 1990 has defined various provisions of the act to better understand the law.

The Federal Board of Revenue (FBR) issued the Sales Tax Act, 1990 updated up to June 30, 2021. The Act incorporated amendments brought through Finance Act, 2021.

2. Definitions.― In this Act, unless there is anything repugnant in the subject or context,–

(1) “active taxpayer” means a registered person who does not fall in any of the following categories, namely:-

(a) who is blacklisted or whose registration is suspended in terms of section 21;

(b) fails to file the return under section 26 by the due date for two consecutive tax periods;

(c) who fails to file an Income Tax return under section 114 or statement under section 115, of the Income Tax Ordinance, 2001(XLIX of 2001), by the due date; and-

(d) who fails to file quarterly or an annual withholding tax statement under section 165 of the Income Tax Ordinance, 2001;

(1A) “Appellate Tribunal” means the Appellate Tribunal Inland Revenue established under section 130 of the Income Tax Ordinance, 2001 (XLIX of 2001);

(2) “appropriate officer” means an officer of Inland Revenue authorised by the Board by notification in the official Gazette to perform certain functions under this Act;

(2A) “arrears”, in relation to a person, means, on any day, the sales tax due and payable by the person under this Act before that day but which has not yet been paid;

(3) “associates (associated persons)” means, –

(i) subject to sub-clause (ii), where two persons associate and the relationship between the two is such that one may reasonably be expected to act in accordance with the intentions of the other, or both persons may reasonably be expected to act in accordance with the intentions of a third person;

(ii) two persons shall not be associates solely by reason of the fact that one person is an employee of the other or both persons are employees of a third person;

(iii) without limiting the generality of sub-clause (i) and subject to sub-clause (iv), the following shall be treated as associates, namely: –

(a) an individual and a relative of the individual;

(b) members of an association of persons;

(c) a member of an association of persons and the association, where the member, either alone or together with an associate or associates under another application of this section, controls fifty per cent or more of the rights to income or capital of the association;

(d) a trust and any person who benefits or may benefit under the trust;

(e) a shareholder in a company and the company, where the shareholder, either alone or together with an associate or associates under another application of this section, controls either directly or through one or more interposed persons–

(i) fifty per cent or more of the voting power in the company;

(ii) fifty per cent or more of the rights to dividends; or

(iii) fifty per cent or more of the rights to capital; and

(f) two companies, where a person, either alone or together with an associate or associates under another application of this section, controls either directly or through one or more interposed persons –

(i) fifty per cent or more of the voting power in both companies;

(ii) fifty per cent or more of the rights to dividends in companies; or

(iii) fifty per cent or more of the rights to capital in both companies.

(iv) two persons shall not be associates under sub-clause (a) or (b) of paragraph (iii) where the Commissioner is satisfied that neither person may reasonably be expected to act in accordance with the intentions of the other.

(v) In this clause, “relative” in relation to an individual, means–

(a) an ancestor, a descendant of any of the grandparents, or an adopted child, of the individual, or of a spouse of the individual; or

(b) a spouse of the individual or of any person specified in sub-clause (a).

(3A) “association of persons” includes a firm, a Hindu undivided family, any artificial juridical person and anybody of persons formed under a foreign law, but does not include a company;

(3AA) “banking company” means a banking company as defined in the Banking Companies Ordinance, 1962 (LVII of 1962) and includes anybody corporate which transacts the business of banking in Pakistan;

(4) “Board” means the Federal Board of Revenue established under section 3 of the Federal Board of Revenue Act, 2007;

(4A) “Chief Commissioner” means a person appointed as the chief Commissioner Inland Revenue under section 30;

(4AA) “Commissioner (Appeals)” means Commissioner of Inland Revenue (Appeals) appointed under section 30;

(5) “Commissioner” means the Commissioner of Inland Revenue appointed under section 30;

(5A) “common taxpayer identification number” means the registration number or any other number allocated to a registered person;

(5AA) “company” means –

(a) a company as defined in the Companies Ordinance, 1984 (XL VII of 1984);

(b) a body corporate formed by or under any law in force in Pakistan;

(c) a modaraba;

(d) a body incorporated by or under the law of a country outside Pakistan relating to incorporation of companies;

(e) a trust, a co-operative society or a finance society or any other society established or constituted by or under any law for the time being in force; or

(f) a foreign association, whether incorporated or not, which the Board has, by general or special order, declared to be a company for the purposes of the Income Tax Ordinance 2001 (XLIX of 2001);

(5AAA) “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;

(5AB) “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;

(5AC) “CREST” means the computerized program for analyzing and cross matching of sales tax returns, also referred to as COMPUTERISED RISK-BASED EVALUATION of SALES TAX;

(6) “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 partner or a proprietor and includes guarantors or successors, who fail to pay the arrears;

(6B) “default surcharge” means the default surcharge levied under section 34;

(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 programmes, 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, means the 15th day of the month following the end of the tax period, or such other date as the Board may, by notification in the official Gazette, specify and different dates may be specified for furnishing of different parts or annexures of the return;

(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;

(11A) “FBR Refund Settlement Company 10a Limited” means the company with this name as incorporated under the Companies Act,

2017 (XIX of 2017), for the purpose of settlement of sales tax and income tax refund claims including payment by way of issuing refund bonds under section 67A’;

(11B) “firm” means the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all;

(12) “goods” include every kind of movable property other than actionable claims, money, stocks, shares and securities;

“(12A) “green industry” in relation to the entry at serial number 150 of the Table-1 of the Sixth Schedule, means-

(a) a new industrial undertaking which is-

(i) setup on land which not previously been utilised for any commercial, industrial or manufacturing activity and is free from constraints imposed by any prior work;

(ii) built without demolishing revamping, renovating, upgrading, remodeling or modifying any existing structure, facility or plant;

(iii) not formed by the splitting up or reconstitution of an undertaking already in existence or by transfer of machinery, plant or building from an undertaking established in Pakistan prior to commencement of the new business and is not part of an expansion project;

(iv) using any process or technology that has not earlier been used in Pakistan and is so approved by the Engineering Development Board; and

(b) is approved by the Commissioner on an application made in the prescribed form and manner, accompanied by the prescribed documents and, such other documents as may be required by the Commissioner:

Provided that this definition shall be applicable from the 1st July, 2019 and onwards.”.

(13) “importer” means any person who imports any goods into Pakistan;

(14) “input tax”, in relation to a registered person, means –

(a) tax levied under this Act on supply of goods to the person;

(b) tax levied under this Act on the import of goods by the person;

(c) in relation to goods or services acquired by the person, 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;  

(d) Provincial Sales Tax levied on services rendered or provided to the person; and

(e) 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;

(14A) the expression “KIBOR” means Karachi Inter-Bank Offered Rate prevalent on the first day of each quarter of the financial year;

(15) “Local Inland Revenue Office” means the office of Superintendent of Inland Revenue 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 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 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 Inland Revenue” means an officer appointed under section 30;

(18A) “online market place” includes an electronic interface such as a market place, e-commerce platform, portal or similar means which facilitate sale of goods, including third party sale, in any of the following manner, namely:–

(a) by controlling the terms and conditions of the sale;

(b) authorizing the charge to the customers in respect of the payment for the supply; or

(c) ordering or delivering the goods.

(19) “open market price” means the consideration in money which that supply or a similar supply would generally fetch in an open market;

(20) “output tax”, in relation to a registered person, means –

(a) tax levied under this Act on a supply of goods, made by the person;

(b) 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;

(c) sales tax levied on the services rendered or provided by the person under Islamabad Capital Territory (Tax on Services) Ordinance, 2001 (XLII of 2001);

(21) “person” means,–

(a) an individual;

(b) a company or association of persons incorporated, formed, organized or established in Pakistan or elsewhere;

(c) the Federal Government;

(d) a Provincial Government;

(e) a local authority in Pakistan; or

(f) a foreign government, a political subdivision of a foreign government, or public international organization;

(22) “prescribed” means prescribed by rules made under this Act;

(22A) “Provincial sales tax” means tax levied under, Provincial laws or laws relating to Islamabad Capital Territory, which are declared by the Federal Government, through notification in the official Gazette to be Provincial Sales Tax for the purpose of input tax;

(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 Commissioner;

(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 shall not be entitled to any benefit available to a registered person under any of the provisions of this Act or the rules made thereunder;

(27) “retail price”, with reference to the Third Schedule, means the price fixed by the manufacturer or importer, in case of imported goods, inclusive of all 7duties, 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:.

Provided that the Board may through a general order specify zones or areas for the purpose of determination of highest retail price for any brand or variety of goods.

(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.

(29) “return” means any return required to be furnished under Chapter-V of this Act;

(29A) “sales tax” means – –

(a) the tax, additional tax, or default surcharge levied under this Act;

(b) a fine, penalty or fee imposed or charged under this Act; and

(c) any other sum payable under the provisions of this Act or the rules made thereunder;

(29AA) “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 resembles 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 37C of the act until such appointment is made by the Special Judge appointed under section 185 of the Customs Act;

(33) “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 –

(a) 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;

(b) auction or disposal of goods to satisfy a debt owed by a person;  

(c) possession of taxable goods held immediately before a person ceases to be a registered person; and

(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:

Provided that the Board, with the approval of the Federal Minister-in-charge, may, by notification in the official Gazette, specify such other transactions which shall or shall not constitute supply;

(33A) “supply chain” means the series of transactions between buyers and sellers from the stage of first purchase or import to the stage of final supply;

(34) tax”, unless the context requires otherwise, means sales tax;

(35) “taxable activity”, means any 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, the rendering or providing of services, or both to another person;

(c) a one-off adventure or concern in the nature of a trade; and

(d) anything done or undertaken during the commencement or termination of the economic activity,

but does not include –

(a) the activities of an employee providing services in that capacity to an employer;

(b) an activity carried on by an individual as a private recreational pursuit or hobby; and

(c) an activity carried on by a person other than an individual which, if carried on by an individual, would fall within sub-clause (b).

(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 or causing falsification of the sales tax invoices,

in contravention of duties or obligations imposed under this Act or rules or instructions issued thereunder with the intention of understating the tax liability or underpaying the tax liability 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 Board, with the approval of the Federal Minister-in-charge, may, by notification in the official Gazette, specify;

“(43A) “Tier-1 retailer” means a retailer falling in any one or more of the following categories, namely:-

(a) a retailer operating as a unit of a national or international chain of stores;

(b) a retailer operating in an air-conditioned shopping mall, plaza or centre, excluding kiosks;

(c) a retailer whose cumulative electricity bill during the immediately preceding twelve consecutive months exceeds Rupees twelve hundred thousand;

(d) a wholesaler-cum-retailer, engaged in bulk import and supply of consumer goods on wholesale basis to the retailers as well as on retail basis to the general body of the consumers”;

(e) a retailer, whose shop measures one thousand square feet in area or more or two thousand square feet in area or more in the case of retailer of furniture;

(f) a retailer who has acquired point of sale for accepting payment through debit or credit cards from banking companies or any other digital payment service provider authorized by State Bank of Pakistan; and

(h) any other person or class of persons as prescribed by the Board.

(44) “time of supply”, in relation to,–

(a) a supply of goods, other than under hire purchase agreement, means 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, means the time at which the agreement is entered into; and

(c) services, means the time at which the services are rendered or provided;

Provided that in respect of sub clause ( a) ,(b) or (c), where any part payment is received, –

(i) for the supply in a tax period, it shall be accounted for in the return for that tax period; and

(ii) 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 ;

(44A) “trust” means an obligation annexed to the ownership of property and arising out of the confidence reposed in and accepted by the owner, or declared and accepted by the owner for the benefit of another, or of another and the owner, and includes a unit trust;

(44AA) “unit trust” means any trust under which beneficial interests are divided into units such that the entitlements of the beneficiaries to income or capital are determined by the number of units held;

(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;

(d) in case of imported goods excluding those as specified in the Third Schedule, the value determined under section 25 of the Customs Act, including the amount of customs-duties and central excise duty levied thereon;

(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 Inland Revenue constituted by the Commissioner;

(f) in case of manufacture of goods belonging to another person, the actual consideration received by the manufacturer for the value addition carried out in relation to such goods;

(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.

(h) in case of supply of electricity by an independent power producer or WAPDA, the amount received on account of energy purchase price only; and the amount received on account of capacity purchase price, energy purchase price premium, excess bonus, supplemental charges etc. shall not be included in the value of supply;  

(i) in case of supply of electric power and gas by a distribution company, the total amount billed including price of electricity and natural gas, as the case may be, charges, rents, commissions and all duties and taxes local, provincial and federal but excluding the amount of late payment surcharge and the amount of sales tax; and

(j) in case of registered person who is engaged in purchasing used vehicles from general public on which sales tax had already been paid at the time of import or manufacturing, and which are, later on, sold in the open market after making certain value addition, value of supply will be the difference between sale and purchase price of the said vehicle on the basis of the valuation method prescribed by the Board.

Provided that, where the Board deems it necessary it may, by notification in the official Gazette, fix the value of any imported goods or taxable supplies or class of supplies and for that purpose fix different values for different classes or description of same type of imported goods or supplies:

Provided further that where the value at which import or supply is made is higher than the value fixed by the Board, the value of goods shall, unless otherwise directed by the Board, be the value at which the import or supply is made;

(46A) “whistleblower” means whistleblower as defined in section 72D of the Sales Tax Act, 1990;

(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 who deducts income tax at source under the Income Tax Ordinance, 2001 (XLIX of 2001); and

(48) “zero-rated supply” means a taxable supply which is charged to tax at the rate of zero per cent under section 4.

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