Karachi, November 12, 2023 – Federal Board of Revenue (FBR) has defined taxable activity in Pakistan for levy of sales tax during tax year 2024.
The FBR has outlined and clarified the concept of taxable activity for the levy of sales tax during Tax Year 2024. The FBR’s release of the updated Sales Tax Act, 1990, effective from July 1, 2023, sheds light on what constitutes a taxable activity and sets the parameters for the application of sales tax.
As per the revised Sales Tax Act, 1990, taxable activity is defined as any economic activity carried on by a person, whether or not for profit. This broad definition encompasses various forms of economic engagements and activities. The delineation includes:
(a) Business, Trade, or Manufacture:
Taxable activity includes any activity carried on in the form of a business, trade, or manufacture. This encompasses a wide array of commercial and industrial pursuits conducted with the intention of generating profit.
(b) Supply of Goods or Rendering/Providing Services:
The definition extends to activities involving the supply of goods, the rendering, or providing of services, or a combination of both to another person. This acknowledges the diversity of economic transactions involving the exchange of goods or services.
(c) One-off Adventure or Concern:
Taxable activity also covers a one-off adventure or concern in the nature of a trade. This provision recognizes isolated or occasional economic engagements that fall within the scope of a trade-like activity.
(d) Commencement or Termination of Economic Activity:
Anything done or undertaken during the commencement or termination of the economic activity is considered taxable. This ensures that activities surrounding the initiation or conclusion of economic engagements are subject to sales tax regulations.
However, the Sales Tax Act, 1990, also specifies what does not fall under the purview of taxable activity. It excludes:
(a) Activities of an Employee:
The activities of an employee providing services in that capacity to an employer are not considered taxable. This exemption acknowledges that services rendered by employees in the course of employment are distinct from independent economic activities.
(b) Private Recreational Pursuit or Hobby:
Activities carried on by an individual as a private recreational pursuit or hobby are exempt from being classified as taxable. This recognizes that personal hobbies and recreational pursuits may not be intended for profit and, therefore, fall outside the scope of taxable activity.
(c) Activities by Non-Individuals Falling Under Individual Categories:
Activities carried on by a person other than an individual, which, if carried on by an individual, would fall within the exemption provided for private recreational pursuits or hobbies.
This comprehensive definition of taxable activity and its exemptions aims to create a clear and consistent framework for the application of sales tax in Pakistan. By providing specific criteria and exclusions, the FBR aims to ensure that the tax system aligns with economic realities while fostering fairness and transparency. As the country moves forward into Tax Year 2024, these clarifications are expected to contribute to a more efficient and equitable tax environment.
