The Sales Tax Act, 1990, as updated by the Federal Board of Revenue (FBR) up to June 30, 2020, clearly defines the term ‘taxable activity’ for the purpose of determining liability under the sales tax regime.
According to the Act, a taxable activity includes any form of economic activity conducted by a person, regardless of whether it is for profit. This definition is broad and forms the basis for identifying persons and activities liable to pay sales tax at the applicable rate.
As per the Sales Tax Act, a taxable activity includes:
• Any business, trade, or manufacturing activity;
• Any activity involving the sales or supply of goods, rendering of services, or both;
• One-time ventures or transactions resembling trade;
• Any actions taken during the commencement or closure of such economic activity.
However, certain activities are explicitly excluded from being treated as taxable. These include:
• Services provided by employees in the capacity of employment;
• Personal hobbies or private recreational activities conducted by individuals;
• Activities by non-individuals that would be considered hobbies if conducted by individuals.
The purpose of defining taxable activity is to ensure clarity in the scope of sales tax liability and to prevent ambiguity in its enforcement. By detailing what constitutes an economic activity subject to sales tax, the law provides a solid framework for taxation authorities and taxpayers alike.
Businesses engaged in any form of economic supply must assess their operations in light of this definition to determine whether their activities fall under the taxable category, making them liable for registration and compliance under the Sales Tax Act.