FBR updates Sales Tax Act incorporating new rates of 18% and 25%

ISLAMABAD: Federal Board of Revenue (FBR) on Tuesday issued updated Sales Tax Act, 1990 incorporating new sales tax rates of 18 per cent and 25 per cent.

The FBR made amendments to the Sales Tax Act, 1990 up to February 23, 2023, which introduced through Finance (Supplementary) Act, 2023 or the mini-budget.

The present government enhanced the normal sales tax rate to 18 per cent from 17 per cent and also introduced 25 per cent sales tax rates on supply of luxury items.

Purpose of enhancing the sales tax rate was to generate additional revenue to meet conditions of International Monetary Fund (IMF).

Section 3 of Sales Tax Act, 1990 explained the scope of tax and its chargeability. Following is the text of the Section 3:

Section 3 Scope of tax.

(1) Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of eighteen per cent of the value of–

(a) taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him; and

(b) goods imported into Pakistan, irrespective of their final destination in territories of Pakistan.

(1A) Subject to the provision of sub section (6) of section 8 or any notification issued thereunder, where taxable supplies are made to a person who has not obtained registration number or he is not an active taxpayer, there shall be charged, levied and paid a further tax at the rate of three percent of the value In addition to the rate specified in sub sections (1), (1B), (2), (5), (6) and section 4 provided that the Federal Govt. may, by notification in the official Gazette, specify the taxable supplies in respect of which the further tax shall not be charged, levied and paid.

(1B) On the goods specified in the Tenth Schedule, in lieu of levying and collecting tax under sub-section (1), the tax shall be levied and collected, in the mode and manner specified therein−

(a) on the production capacity of plants, machinery, undertaking, establishments or installation producing or manufacturing such goods; or

(b) on fixed basis, from any person who is in a position to collect such tax due to the nature of the business, and different rates may be so prescribed for different regions or areas.]

(2) Notwithstanding the provisions of sub-section (1): –

(a) taxable supplies and import of goods specified in the Third Schedule shall be charged to tax at the rate of eighteen per cent of the retail price or in case such supplies or imports are also specified in the Eighth Schedule, at the rates specified therein and the retail price thereof, along with the amount of sales tax shall be legibly, prominently and indelibly printed or embossed by the manufacturer, or the importer, in case of imported goods, on each article, packet, container, package, cover or label, as the case may be:

Provided that the Federal Government may, subject to such conditions and restrictions as it may impose, by notification in the official Gazette, declare that the tax on goods specified in the Third Schedule shall be collected and paid at such higher rate or rates on the retail price thereof, as may be specified in the said notification: and

Provided further that the Board, may, by notification in the official Gazette, exclude any taxable supply or import from the said Schedule or include any taxable supply or import therein;

(aa) goods specified in the Eighth schedule shall be charged to tax at such rates and subject to such conditions and limitations as specified therein; and

(b) the Federal Government may, subject to such conditions and restrictions as it may impose, by notification in the official Gazette, declare that in respect of any taxable goods, the tax shall be charged, collected and paid in such manner and at such higher or lower rate or rates as may be specified in the said notification.

(3) The liability to pay the tax shall be,-

(a) in the case of supply of goods, of the person making the supply, and

(b) in the case of goods imported into Pakistan, of the person importing the goods.

(3A) Notwithstanding anything contained in clause (a) of sub-section (3), the Board, with the approval of the Federal Minister-in-charge, may, by a notification in the official Gazette, specify the goods in respect of which the liability to pay tax shall be of the person receiving the supply.

(3B) Notwithstanding anything contained in sub section (1) and (3), sales tax on the import and supply of the goods specified in the Ninth Schedule to this Act shall be charged, collected and paid at the rates, in the manner, at the time, and subject to the procedure and conditions as specified therein or as may be prescribed, and the liability to charge, collect and pay the tax shall be on the persons specified therein.

(5) The Federal Government may, in addition to the tax levied under sub-section (1), sub-section (2) and sub-section (4), levy and collect “tax at such extra rate or amount” not exceeding eighteen per cent of the value of such goods or class of goods and on such persons or class of persons, in such mode, manner and at time, and subject to such conditions and limitations as it may, by rules, prescribe.

(6) The Federal Government or the Board may, in lieu of the tax under sub-section (1), by notification in the official Gazette, levy and collect such amount of tax as it may deem fit on any supplies or class of supplies or on any goods or class of goods and may also specify the mode, manner or time of payment of such amount of tax.

(7) The tax shall be withheld at the rate as specified in the Eleventh Schedule, by any person or class of persons being purchaser of goods or services, other than the services liable to pay sales tax under a Provincial enactment, as withholding agent for the purpose of depositing the same, in such manner and subject to such conditions or restrictions as the Board may prescribe in this behalf through a notification in the official Gazette 190:

Provided that in case of the online market place facilitating the sale of third party goods, the liability to withhold tax on taxable supplies of such party at the rates specified in column (4) against S. No. 8 of the Eleventh Schedule to the Sales Tax Act, 1990 shall be on the operator of such market place.

(8) Notwithstanding anything contained in any law or notification made thereunder, but subject to the provisions of clause (b) of sub-section (2) in case of supply of natural gas to CNG stations, the Gas Transmission and Distribution Company shall charge sales tax from the CNG stations at the rate of eighteen per cent of the value of supply to the CNG consumers, as notified by the Board from time to time, but excluding the amount of tax, as provided in clause (46) of section 2.

(9) Notwithstanding anything contained in sub-section (1), tax shall be charged from retailers, other than those falling in Tier-1, through their monthly electricity bills, at the rate of five percent where the monthly bill amount does not exceed rupees twenty thousand and at the rate of seven and half percent where the monthly bill amount exceeds the aforesaid amount and the electricity supplier shall deposit the amount so collected directly without adjusting against his input tax:

Provided that the tax under this sub-section shall be in addition to the tax payable on supply of electricity under sub-sections (1), (1A) and (5):

Provided further that the Commissioner of Inland Revenue having jurisdiction shall issue order to the electricity supplier regarding exclusion of a person who is either a Tier-1 retailer or not a retailer.

(9A) Notwithstanding anything contained in this Act, Tier-1 retailers shall pay sales tax at the rate as applicable to the goods sold under relevant provisions of this Act or a notification issued there under:

Provided further that from such date, and in such mode and manner, as prescribed by the Board, all Tier-1 retailers shall integrate their retail outlets with Board’s computerized system for real-time reporting of sales.

(9AA) In respect of goods, specified in the Thirteenth Schedule, the minimum production for a month shall be determined on the basis of a single or more inputs as consumed in the production process as per criterion specified in the Thirteenth Schedule and if minimum production so determined exceeds the actual supplies for the month, such minimum production shall be treated as quantity supplied during the month and the liability to pay tax shall be discharged accordingly.

(11) Notwithstanding anything contained in the Act, the Board through Notification in the official Gazette, may require class of persons to integrate their invoice issuing machines with the Board’s Computerized System for real time reporting of sales in such mode and manner and from such date as may be prescribed.

(12) Notwithstanding anything contained in this Act, the Federal Government may, in lieu of or in addition to the tax under sub-section (9), by notification in the official Gazette, levy and collect such amount of tax at such rates and from such date as it may deem fit, from retailers, other than those falling in Tier-1, through their monthly electricity bill, and may also specify the mode, manner or time of payment of such tax:

Provided that different rates or amounts of tax may be specified for different persons or class of persons.