The Federal Board of Revenue (FBR) has explained value of supply for sales tax levy during tax year 2024 to facilitate taxpayers in understanding the tax liability.
The FBR has provided a comprehensive explanation of the value of supply for sales tax levy during the tax year 2024, as outlined in the Sales Tax Act of 1990. The Act, applicable from July 1, 2023, sheds light on the intricacies of determining the value of supply in various scenarios.
According to the FBR, the value of supply, in the context of taxable transactions, is defined as the consideration in money that the supplier receives from the recipient, including all Federal and Provincial duties and taxes, excluding the amount of tax. However, several provisions and exceptions have been detailed to ensure a fair and accurate assessment:
• In cases where consideration includes both money and in-kind transactions, the value of supply will be the open market price excluding the tax.
• If the supplier and recipient are associated persons and the supply is made for no consideration or a lower-than-market value consideration, the open market price will determine the value of supply.
• For taxable supplies to consumers on an installment basis with a price higher than the open market, the value of supply will be the open market price excluding the tax.
The Act also addresses trade discounts, special nature transactions, and imported goods, where the value is determined under section 25 of the Customs Act, including customs duties and central excise duty.
In cases where the declared value appears incorrect, a Valuation Committee will determine the accurate value. For manufactured goods belonging to another person, the consideration received for value addition is the determining factor.
The Act also specifies the value in relation to retail tax, the supply of electricity, and gas, with distinct considerations for independent power producers, WAPDA, and distribution companies.
The FBR clarifies that the value of supply does not include the amount of subsidy provided by federal or provincial governments to electricity or natural gas consumers.
Moreover, for registered persons engaged in purchasing used vehicles on which sales tax has already been paid, the value of supply is the difference between the sale and purchase price, based on the valuation method prescribed by the Board.
The FBR retains the authority to fix values for imported goods or taxable supplies and may provide notifications for different classes or descriptions. If the actual import or supply value exceeds the Board’s fixed value, the higher value will prevail unless otherwise directed by the Board.
This comprehensive clarification by the FBR aims to enhance transparency and consistency in the application of sales tax during the tax year 2024.
