The Federal Board of Revenue (FBR) has addressed the long-standing ambiguity in determining the “value of supply” for the purpose of calculating sales tax under the updated Sales Tax Act, 1990, applicable for the tax year 2025.
This clarification introduces detailed definitions and parameters to ensure uniformity and transparency in tax collection.
The FBR outlined several scenarios to define the value of supply comprehensively:
1. Taxable Supply Value:
The value of supply includes the monetary consideration, as well as federal and provincial duties and taxes, but excludes the sales tax amount itself.
o If the consideration is wholly or partly in kind, the value is based on the open market price (excluding tax).
o For associated persons where the supply is made at no consideration or below market value, the open market price applies.
o For installment-based supplies with markup or surcharge, the value aligns with the open market price.
2. Trade Discounts:
The discounted price, excluding tax, is considered valid if documented on the invoice and aligns with regular business practices.
3. Special Transactions:
In cases where the value is challenging to determine, the open market price serves as the benchmark.
4. Imported Goods:
The value for imports (excluding those specified in the Third Schedule) is based on the Customs Act’s valuation under Section 25, including applicable duties and federal excise tax.
5. Suspected Undervaluation:
If the declared invoice value is suspected to be incorrect, the Valuation Committee—comprising trade representatives and Inland Revenue officials—will determine the value.
6. Manufacturing Services:
For goods manufactured for another party, the value is the consideration received for the value addition.
7. Retail Tax:
The value excludes retail tax but reflects the supplier’s price at the time of supply or as notified by the FBR.
8. Electric Power and Gas Supply:
o For independent power producers and WAPDA, the value is based solely on the energy purchase price. Other charges, such as capacity purchase premiums, are excluded.
o For distribution companies, the value includes the total billed amount, excluding late payment surcharges and sales tax. Subsidies from the federal or provincial governments are also excluded.
9. Used Vehicles:
For registered dealers dealing in used vehicles, the value is the difference between the sale and purchase price.
Additional Provisions
The FBR retains the authority to fix the value of imported or taxable supplies through notifications in the Official Gazette. This allows flexibility to address specific goods or classes of supply, ensuring accurate tax assessments.
By elaborating on these provisions, the FBR aims to enhance compliance, reduce disputes, and provide a clear framework for businesses and taxpayers. These updates reflect the government’s commitment to streamlining tax processes and fostering greater transparency in the financial system.
