FBR sets four conditions for a manufacturing concern to qualify as a cottage industry under Pakistan’s sales tax law.

ISLAMABAD: The Federal Board of Revenue (FBR) has clarified what constitutes a ‘cottage industry’ in Pakistan for tax year 2027 under the sales tax law.

The FBR has issued the Sales Tax Act, 1990, updated up to June 30, 2026, which defines a cottage industry and sets out four conditions that a manufacturing concern must meet to qualify.

According to the updated law, a “cottage industry” means a manufacturing concern that fulfils all of the following conditions:

• No industrial gas or electricity connection: The manufacturing concern must not have an industrial gas or electricity connection.

• Located in a residential area: The manufacturing concern must be situated in a residential area.

• Limited workforce: It must not have a total labour force of more than 10 workers.

• Annual turnover limit: Its annual turnover from all supplies must not exceed Rs8 million.

The use of the word “each” in the definition means that a manufacturing concern must fulfil all four conditions to qualify as a cottage industry under the Sales Tax Act.

Therefore, failure to meet even one of the prescribed conditions would mean that the manufacturing concern would not fall within the statutory definition of a cottage industry for sales tax purposes.

The definition forms part of the FBR’s updated Sales Tax Act, 1990, incorporating amendments and changes up to June 30, 2026, and provides the applicable legal framework for tax year 2027.