Updated sales tax rules set valuation methods for taxable supplies, imports, utilities, used vehicles, trade discounts and special transactions.
ISLAMABAD: The Federal Board of Revenue (FBR) has laid down the rules for determining the “value of supply” for sales tax purposes in Tax Year 2027 under Pakistan’s prevailing sales tax laws.
The FBR has updated the Sales Tax Act, 1990, which specifies how the taxable value of goods and certain services is to be determined across different types of transactions.
Value of taxable supply
For a taxable supply, the value generally means the monetary consideration received by the supplier from the recipient, including applicable federal and provincial duties and taxes but excluding sales tax itself.
Where consideration is wholly or partly provided in kind, the value of supply will be based on the open market price, excluding the amount of tax.
The same open-market-price rule applies where the supplier and recipient are associated persons and the supply is made without consideration or at a price below the open market price.
For taxable supplies made to consumers on an instalment basis where the price includes mark-up or surcharge and exceeds the open market price, the value will also be based on the open market price, excluding sales tax.
Trade discounts
Where a trade discount is offered, the value of supply will be the discounted price excluding tax.
However, the tax invoice must clearly show the discounted price and the related tax, and the discount must be in accordance with normal business practices.
Where the value of a supply is difficult to determine because of the special nature of a transaction, the open market price will be used.
Valuation of imported goods
For imported goods, other than goods specified in the Third Schedule, the value will be determined under Section 25 of the Customs Act.
The valuation will include customs duties and federal excise duty imposed on the imported goods.
Where there are sufficient grounds to believe that the value declared on an invoice is incorrect, the value may be determined by a Valuation Committee comprising representatives of trade and Inland Revenue constituted by the Commissioner.
Goods manufactured for another person
Where goods belonging to another person are manufactured, the value of supply will be the actual consideration received by the manufacturer for the value addition carried out on those goods.
For taxable supplies subject to retail tax, the value will be the price of taxable goods excluding retail tax that the supplier charges at the time of making the supply, or another price specified by the FBR through an official gazette notification.
Special rules for electricity and power
The law provides specific valuation rules for electricity supplied by independent power producers (IPPs) or WAPDA.
In such cases, the value of supply will comprise the amount received as energy purchase price.
Amounts received as capacity purchase price, energy purchase price premium, excess bonus and supplemental charges will not be included in the value of supply.
For electric power and gas supplied by distribution companies, the value will comprise the total amount billed, including the price of electricity or natural gas, charges, rents, commissions and applicable local, provincial and federal duties and taxes.
However, late payment surcharges and sales tax are excluded.
The FBR has also clarified that government subsidies provided by the federal or provincial governments to electricity or natural gas consumers, including consumers of re-gasified liquefied natural gas, are not included in the value of supply and are not chargeable to sales tax under the Act.
Used vehicle valuation
A separate rule applies to registered persons purchasing used vehicles from the general public where sales tax had already been paid when the vehicles were imported or manufactured.
If such vehicles are subsequently sold in the open market after value addition, the value of supply will be the difference between the sale price and purchase price.
The valuation will be made according to the method prescribed by the FBR.
FBR can fix values for goods and supplies
The FBR has the authority to notify the value of imported goods, including Third Schedule items, taxable supplies or classes of supplies through the official gazette.
The Board may establish different values for different classes or descriptions of the same type of imported goods or supplies.
For valuation purposes, the FBR may use values notified by the Pakistan Bureau of Statistics immediately before the start of the relevant tax period.
The Board may also outsource valuation functions to a third party in the prescribed manner.
However, where the actual import or supply value is higher than the value fixed by the FBR, the value of the goods will generally be the actual import or supply value, unless the Board directs otherwise.
The provisions provide a comprehensive framework for determining the taxable value of supplies in Tax Year 2027, covering ordinary transactions as well as discounts, imports, associated-party transactions, utilities, used vehicles and specially valued goods.