Tag: Sales Tax Act 1990

What is input tax under Sales Tax Act?

The Sales Tax Act, 1990 as issued by the Federal Board of Revenue (FBR) as updated up to June 30, 2020 has explained input tax in relation to a registered person.

The input tax in relation to a registered person has been explained as:

(a) tax levied under this Act on supply of goods to the person;

(b) tax levied under this Act on the import of goods by the person;

(c) in relation to goods or services acquired by the person, tax levied under the Federal Excise Act, 2005 in sales tax mode as a duty of excise on the manufacture or production of the goods, or the rendering or providing of the services;

(d) Provincial Sales Tax levied on services rendered or provided to the person; and

(e) levied under the Sales Tax Act, 1990 as adapted in the State of Azad Jammu and Kashmir, on the supply of goods received by the person.

February 4, 2021
Associates defined under Sales Tax Act 1990

Associates or Associated Persons have been defined under Sales Tax Act, 1990.

Section 2 of Sales Tax Act, 1990 (updated up to June 30, 2020 issued by the Federal Board of Revenue (FBR) explained associates as:

(3) associates (associated persons) means, –

(i) subject to sub-clause (ii), where two persons associate and the relationship between the two is such that one may reasonably be expected to act in accordance with the intentions of the other, or both persons may reasonably be expected to act in accordance with the intentions of a third person;

(ii) two persons shall not be associates solely by reason of the fact that one person is an employee of the other or both persons are employees of a third person;

(iii) without limiting the generality of sub-clause (i) and subject to sub-clause (iv), the following shall be treated as associates, namely: –

(a) an individual and a relative of the individual;

(b) members of an association of persons;

(c) a member of an association of persons and the association, where the member, either alone or together with an associate or associates under another application of this section, controls fifty per cent or more of the rights to income or capital of the association;

(d) a trust and any person who benefits or may benefit under the trust;

(e) a shareholder in a company and the company, where the shareholder, either alone or together with an associate or associates under another application of this section, controls either directly or through one or more interposed persons–

(i) fifty per cent or more of the voting power in the company;

(ii) fifty per cent or more of the rights to dividends; or

(iii) fifty per cent or more of the rights to capital; and

(f) two companies, where a person, either alone or together with an associate or associates under another application of this section, controls either directly or through one or more interposed persons –

(i) fifty per cent or more of the voting power in both companies;

(ii) fifty per cent or more of the rights to dividends in companies; or

(iii) fifty per cent or more of the rights to capital in both companies.

(iv) two persons shall not be associates under sub-clause (a) or (b) of paragraph (iii) where the Commissioner is satisfied that neither person may reasonably be expected to act in accordance with the intentions of the other.

(v) In this clause, “relative” in relation to an individual, means–

(a) an ancestor, a descendant of any of the grandparents, or an adopted child, of the individual, or of a spouse of the individual; or

(b) a spouse of the individual or of any person specified in sub-clause (a).

(3A) “association of persons” includes a firm, a Hindu undivided family, any artificial juridical person and anybody of persons formed under a foreign law, but does not include a company;

(3AA) “banking company” means a banking company as defined in the Banking Companies Ordinance, 1962 (LVII of 1962) and includes anybody corporate which transacts the business of banking in Pakistan;

February 3, 2021
Active taxpayer under Sales Tax Act 1990

Sales Tax Act, 1990 (updated up to June 30, 2020) has defined the active taxpayer. The term ‘active taxpayer’ was introduced through Finance Act, 2015. It has been defined as a registered person who does not fall in any of the following categories, namely:-

(a) who is blacklisted or whose registration is suspended in terms of section 21 of the Act;

(b) fails to file the return under section 26 of the Act by the due date for two consecutive tax periods;

(c) who fails to file an Income Tax return under section 114 or statement under section 115, of the Income Tax Ordinance, 2001(XLIX of 2001), by the due date; and

(d) who fails to file quarterly or an annual withholding tax statement under section 165 of the Income Tax Ordinance, 2001.

The Federal Board of Revenue (FBR) further explained:

The Active Taxpayer List (Sales Tax) is a central record of online active Sales Tax Return filers.

To become part of the Active Taxpayer List (ST), the Active Taxpayer must be a registered person who does not fall in the following categories:

Blacklisted or whose registration is suspended or blocked;

Failed to file return by the due date for two consecutive tax periods;

Failed to file Income Tax Return by the due date;

Failed to file withholding tax statement.

Active Taxpayer status (ST) can be checked through the online portal.

The ATL status check allows you to confirm your Active Taxpayer status.

The Commissioner may suspend registration of a Taxpayer, if the person is found to have issued fake invoices, evaded tax or committed tax fraud without prior notice, pending further inquiry.

Suspension of registration can occur due to the following possibilities:

Non-availability of the registered person at the given address;

Refusal to allow access to business premises or refusal to furnish records to an authorized Inland Revenue Officer;

Abnormal tax profile, such as taking excessive input tax adjustments, continuous carry-forwards, or sudden increase in turnover;

Making substantial purchases from or making supplies to other blacklisted or suspended person;

Non-filing of sales tax returns by a registered person for six consecutive months;

On recommendation of a commissioner of any other jurisdiction;

Any other reason to be specified by the Commissioner;

Impact of Suspension

Commissioner shall issue written order to the concerned registered person detailing the reasons for suspension. The order shall also be provided to all other Large Taxpayer Units (LTUs)/Regional Tax Offices (RTOs), the FBR‘s computer system, the STARR computer system and the Customs Wing computer system for information and necessary action as per law;

Suspension of registered person will make them ineligible to avail input tax adjustment/refund. Similarly, no input tax adjustment/refund shall be allowed to any other registered persons on the basis of invoices issued by such suspended person (whether issued prior to or after such suspension);

The suspended registered person will be issued a show cause notice (through registered post or courier service) within seven days of issuance of order of suspension by the Commissioner. The registered person will have an opportunity of hearing with fifteen days of the issuance of such notice clearly indicating that the will be blacklisted. In case of non-availability of the suspended person at the given address, the notice may be placed on the main notice Board of the LTU/RTO;

Where the show cause notice is not issued within seven days of the order of suspension, the order of suspension shall become invalid;

For restoration of Active Taxpayer (ST), Sales Tax General Order No. 34/2010 dated 16-9-2010 may be followed.

A non-active taxpayer may be restored to active taxpayer status:

If the respective RTO/LTU recommends the same to FBR after conducting audit or other investigation;

Compotent Authority, Appellate Authority, Court or FTO orders for the restoration.

February 3, 2021
Sales tax value addition at 3 percent applicable on all imported goods

ISLAMABAD: Sales tax on account of minimum value addition at three percent is applicable on all imported goods subject to exclusions on import of various imported goods.

According to Sales Tax Act, 1990, all imported goods are subject to 3 percent ad valorem subject to exclusion as in conditions and procedure.

The government recently abolished three percent sales tax value addition on import of sugar to help in reducing domestic prices of the commodity.

The officials at the Federal Board of Revenue (FBR) said that under the Sales Tax Act, 1990 the procedure and conditions have been laid down for the levy of three percent value addition tax on imported goods.

(1) The sales tax on account of minimum value addition as payable under this Schedule (hereinafter referred to as value addition tax), shall be levied and collected at import stage from the importers on all taxable goods as are chargeable to tax under section 3 of the Act or any notification issued thereunder at the rate specified in the Table in addition to the tax chargeable under section 3 of the Act or a notification issued thereunder:

(2) The value addition tax under this Schedule shall not be charged on,—

(i) Raw materials and intermediary goods imported by a manufacturer for in-house consumption;

(ii) The petroleum products falling in Chapter 27 of Pakistan Customs Tariff as imported by a licensed Oil Marketing Company for sale in the country;

(iii) Registered service providers importing goods for their in-house business use for furtherance of their taxable activity and not intended for further supply;

(iv) Cellular mobile phones or satellite phones;

(v) LNG / RLNG;

(vi) Second hand and worn clothing or footwear (PCT Heading 6309.000);

(vii) Gold, in un-worked condition;

(viii) Silver, in un-worked condition;

(ix) The goods as specified in the Third Schedule on which tax is paid on retail price basis; and

(x) plant, machinery and equipment falling in Chapters 84 and 85 of the First Schedule to the Customs Act, 1969 (IV of 1969), as are imported by a manufacturer for in-house installation or use.

(3) The value addition tax paid at import stage shall form part of input tax, and the importer shall deduct the same from the output tax due for the tax period, subject to limitations and restrictions under the Act, for determining his net liability.

The excess of input tax over output tax shall be carried forwarded to the next tax period as provided in section 10 of the Act.

(4) The refund of excess input tax over output tax, which is attributable to tax paid under this Schedule, shall not be refunded to a registered person in any case, except that as used for making of zero-rated supplies.

(5) The registered person, if also dealing in goods other than imported goods, shall be entitled to file refund claim of excess carried forward input tax for a period as provided in section 10 or in a notification issued there under by the Board after deducting the amount attributable to the tax paid at import stage i.e. sum of amounts paid during the claim period and brought forward to claim period. Such deducted amount may be carried forward to subsequent tax period.

January 25, 2021
Defaulting sales tax payment may liable to three-year jail

ISLAMABAD: A person fails to pay sales tax within due date or to comply with recovery order is liable to certain fine and penalty under Sales Tax Act, 1990, officials in Federal Board of Revenue (FBR) said on Tuesday.

Any person who fails to deposit the amount of tax due or any part thereof in the time or manner laid down under Sections 3, 6, 7 and 48 of this Act or rules or orders made there under:

“Such person shall pay a penalty of ten thousand rupees or five per cent of the amount of the tax involved, whichever is higher:

“Provided that, if the amount of tax or any part thereof is paid within ten days from the due date, the defaulter shall pay a penalty of five hundred rupees for each day of default:

“Provided further that no penalty shall be imposed when any miscalculation is made for the first time during a year:

“Provided further that if the amount of tax due is not paid even after the expiry of a period of sixty days of issuance of the notice for such payments by an officer of Inland Revenue, not below the rank of Assistant Commissioner Inland Revenue, the defaulter shall, further be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to three years, or with fine which may extend to amount equal to the amount of tax involved, or with both. “

January 12, 2021
Three years imprisonment for sales tax registration failure

ISLAMABAD: A person who makes taxable supplies but fails to get sales tax registration shall be liable to pay fine and penalties besides the person is also liable to imprisonment up to three years.

Sources in the Federal Board of Revenue (FBR) said that the tax offices had launched operations to identify persons making taxable supplies but are not in the sales tax net.

The sources said that under Sales Tax Act, 1990, any person who is required to apply for registration under the Act fails to make an application for registration before making taxable supplies:

“Such person shall pay a penalty of Rs10,000 or five percent of the amount of tax involved, whichever is higher;

“Provided that such person who is required to get himself registered under this Act, fails to get registered within sixty days of the commencement of taxable activity, he shall, further be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to three years, or with fine which may extend to an amount equal to amount of tax involved, or with both.”

Section 14 of the Sales Tax Act, 1990 requires a person to get registration under this Act, who is making taxable services.

Following is the tax of the Section 14:

Section 14: Registration

(1) Every person engaged in making taxable supplies in Pakistan, including zero-rated supplies, in the course or furtherance of any taxable activity carried on by him, falling in any of the following categories, if not already registered, is required to be registered under this Act, namely:-

(a) a manufacturer who is not running a cottage industry;

(b) a retailer who is liable to pay sales tax under the Act or rules made thereunder, excluding such retailer required to pay sales tax through his electricity bill under sub-section (9) of section 3;

(c) an importer;

(d) an exporter who intends to obtain sales tax refund against his zero-rated supplies;

(e) a wholesaler, dealer or distributor; and

(f) a person who is required, under any other Federal law or Provincial law, to be registered for the purpose of any duty or tax collected or paid as if it were a levy of sales tax to be collected under the Act.

(2) Persons not engaged in making taxable supplies in Pakistan, if required to be registered for making imports or exports, or under any provisions of the Act, or any other Federal law, may apply for registration.

(3) The registration under this Act shall be regulated in such manner as the Board may, by notification in the official Gazette, prescribe.

January 9, 2021
Sales tax recovery: movable, immovable property may be sold without attachment

ISLAMABAD: Sales tax laws have given immense powers to officers of Inland Revenue and they can recover due sales tax by selling movable or immovable property without attachment.

Sources in Federal Board of Revenue (FBR) told PkRevenue.com that under Section 48 of the Sales Tax Act, 1990 a mechanism for recovery of arrears of tax has been defined.

For the purpose of recovery of tax, penalty or any other demand raised under this Sales Tax Act, 1990, the officer of Inland Revenue shall have the same powers which under the Code of Civil Procedure 1908 (V of 1908), a Civil Court has for the purpose of recovery of an amount due under a decree.

They said that Section 48(1)(b)(c) clearly mentioned that tax officials may attach and sell or sell without attachment any movable or immovable property of the registered person from whom tax is due.

The tax officers are also empowered to recover the sales tax amount from a person whose amount is stuck up with other tax authorities.

“[The tax officers may] deduct the amount from any money owing to person from whom such amount is recoverable and which may be at the disposal or in the control of such officer or any officer of Income Tax, Customs or Central Excise Department,” according to the law.

The officers of Inland Revenue can order any person who holds money of a person in default, besides the officers can also:

“Stop removal of any goods from the business premises of such person till such time the amount of tax is paid or recovered in full;

“require by a notice in writing any person to stop clearance of imported goods or manufactured goods or attach bank accounts;

“seal the business premises till such time the amount of tax is paid or recovered in full;

“recover such amount by attachment and sale of any movable or immovable property of the guarantor, person, company, bank or financial institution, where a guarantor or any other person, company, bank or financial institutions fail to make payment under such guarantee, bond or instrument.”

Provided that the Commissioner Inland Revenue or any officer of Inland Revenue shall not issue notice under this section or the rules made thereunder for recovery of any tax due from a taxpayer if the said taxpayer has filed an appeal under section 45B in respect of the order under which the tax sought to be recovered has become payable and the appeal has not been decided by the Commissioner (Appeals), subject to the condition that ten per cent of the amount of tax due has been paid by the taxpayer.

“If any arrears of tax, default surcharge, penalty or any other amount which is adjudged or payable by any person and which cannot be recovered in the manner prescribed above, the Board or any officer authorized by the Board, may, write off the arrears in the manner as may be prescribed by the Board, the FBR said.

January 3, 2021
FBR issues procedure for condonation of sales tax cases

ISLAMABAD: Federal Board of Revenue (FBR) on Monday issued procedure for condonation of time limit in sales tax cases.

The FBR issued Sales Tax Circular No. 02 of 2020 for the purpose of disposal of requests for condonation of time limit, and directed field formation including LTOs, MTO, CTOs and RTOs to process the taxpayers’ requests for the condonation of time limit under Section 74 of Sales Tax Act, 1990 read with SRO 394(I)/2009 dated May 21, 2009.

The FBR directed the field formation to follow the procedure:

01. Whether any application for condotnation submitted by the taxpayer with field formation?

If ‘yes’, decision taken thereon by the field formation.

02. Genuineness/authenticity of the reasons narrated for condonation sought by the taxpayer.

If ‘yes’, elaborate with details along with supporting document.

03. Whether the reasons for delay in seeking condonation on the part of the taxpayer are cogent?

If ‘yes’, elaborate with details along with supporting documents.

04. Revenue impact (in case of registered person as well as other persons involved), if any.

If ‘yes’, amount to be mentioned.

05. Whether any system/technical glitch involved in the case?

If ‘yes’, details of the system glitch along with supporting documents.

06. Whether the condonation involved transaction of any closed, de-registered or any person whose registration has been blacklisted or suspended?

If ‘yes’, then specify with reason.

07. Whether the condonation involved adjustment/refund of amount which has already been claimed by taxpayer?

Specify in detail.

08. Whether supplier discharged due sales tax on supply after issuance of invoice and duly verified from Annex-C in the condonation cases of Power Sectors etc?

If ‘yes’, specify the date and month of return in which the same has been incorporated.

09. Both buyer and supplier are active on Active Taxpayers List (ATL).

‘Yes’/’No’

10. Whether payment is made to supplier through banking channel as envisaged under Section 73 of the Act (In the case of Power Sector and provincial revenue authorities input)? In case, partial payment is made to supplier, balance payable to supplier with reason.

‘Yes’/’No’.

The FBR said that the procedure for condonation cases shall become applicable with effect from September 21, 2020.

September 21, 2020
Withholding sales tax regime streamlined

ISLAMABAD: Federal Board of Revenue (FBR) has streamlined sales tax withholding regime for compelling sales tax return filing and realizing full revenue on sale/purchase.

The FBR issued Circular No. 01 dated August 06, 2020 to explain changes made to Sales Tax Act, 1990 through Finance Act, 2020.

The FBR said that Eleventh Schedule provides for withholding agents to deduct tax at the time of purchase from both registered and unregistered persons.

The categories of withholding agents include Federal and Provincial Government departments, companies, public sector organizations and autonomous bodies.

However, it has been noticed that most of the registered suppliers whose tax has been withheld do not usually file their sales tax returns and resultantly, fail to pay their remaining amount of 4/5th tax in case 1/5th of the tax involved is withheld by the purchaser as aforementioned.

To enforce returns by the such suppliers and payment of remaining tax involved, the whole concept of withholding has now been linked to the supplier (withholdee) being on the ATL list of the FBR or otherwise.

The persons other than Active Taxpayers shall be given the same treatment as was previously accorded to unregistered persons i.e. government and public sector enterprises shall deduct whole of the tax involved in case of supplies made by persons other than those on ATL and the companies shall deduct 5 percent of gross value of supplies on supplies by such persons. This aims at promoting return filing and documentation culture in the country.

August 12, 2020
Reduced rate of withholding sales tax withdrawn for registered persons

ISLAMABAD: A registered person, who is not an active taxpayer, may not avail benefit of reduced rate of withholding sales tax after amendment made through Finance Act, 2020.

Sources in Federal Board of Revenue (FBR) said that amendments have been made to Eleventh Schedule of Sales Tax Act, 1990 through Finance Act, 2020 under which the active taxpayers would be eligible to avail reduced rate of withholding sales tax at the time of supplies.

Prior to this amendment registered persons were enjoying the reduced rate at the time of supply but now the registered persons, if not active taxpayers, shall pay full amount of sales tax.

According to the amendment the withholding agents including federal and provincial government departments; autonomous bodies; and public sector organizations; companies as defined in the Income Tax Ordinance, 2001 shall collect/deduct 1/5^th of sales tax as shown on invoice from those persons, who are active taxpayers.

Similarly, person registered, but no active taxpayer, as a wholesaler, dealer or distributor are required to pay full amount of sales tax instead of reduced rate.

Prior to the amendment, the withholding agents including federal and provincial government departments; autonomous bodies; and public sector organizations; companies as defined in the Income Tax Ordinance, 2001 were required to collect/deduct 1/10^th of sales tax as shown on invoice from person registered as a wholesaler, dealer or distributor.

In serial No. 03 of the Schedule, the Federal and provincial government departments; autonomous bodies; and public sector organizations are required to collect/deduct whole of the tax involved or as applicable to supplies on the basis of gross value of supplies form person other than active taxpayer.

Similarly in Serial No. 04, the companies as defined in the Income Tax Ordinance, 2001 are required to collect/deduct five percent of gross value of supplies from persons other than active taxpayers.

In serial number 06 the registered persons purchasing cane molasses are required to collect/deduct whole of sales tax applicable from persons other than active taxpayers.

Active Taxpayer has been defined under Sales Tax Act, 1990 as a registered person who does not fall in any of the following categories, namely:-

(a) who is blacklisted or whose registration is suspended in terms of section 21;

(b) fails to file the return under section 26 by the due date for two consecutive tax periods;

(c) who fails to file an Income Tax return under section 114 or statement under section 115, of the Income Tax Ordinance, 2001(XLIX of 2001), by the due date; and

(d) who fails to file quarterly or an annual withholding tax statement under section 165 of the Income Tax Ordinance, 2001.

July 29, 2020