Sales tax law has defined output tax as a supply of goods, made by the person.
The Sales Tax Act, 1990 (updated June 30, 2020) issued by the Federal Board of Revenue (FBR) has defined output tax in relation to a registered person as:
(a) tax levied under this Act on a supply of goods, made by the person;
(b) 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, by the person;
(c) sales tax levied on the services rendered or provided by the person under Islamabad Capital Territory (Tax on Services) Ordinance, 2001 (XLII of 2001).
Experts explain that output tax represents the tax liability charged by a registered business on the sale of taxable goods or services, which is later paid to the government after adjusting any allowable input tax. Under the sales tax mechanism, it ensures that tax is collected at each stage of the supply chain while preventing double taxation.
Businesses are required to properly document output tax in their sales invoices and monthly returns filed with FBR. The difference between output tax and input tax determines the net tax payable or refundable position of a registered person under the Sales Tax Act.