SALES TAX BASICS

SALES TAX BASICS

Before Registration and Filing of your Sales Tax Return, it is recommended that one should establish basic understanding regarding these processes. Knowledge of basic concepts would not only ensure that the tasks are performed easily but also in the prescribed manner.

Sales Tax is a tax levied by the Federal Government under the Sales Tax Act, 1990, on sale and supply of goods and on the goods imported into Pakistan. Sales Tax on services is levied by the Federal Government under The Islamabad Capital Territory (Tax on Services) Ordinance, 2001.

INPUT TAX

Input tax is the tax paid by registered person on the taxable goods and services purchased or acquired by him. This also includes the sales tax paid on imports.

OUTPUT TAX

It is the sales tax charged and levied on the sale or supply of goods or services on which sales tax is leviable.

SCOPE OF SALES TAX

GOODS

Sales tax applies to the following:

All goods are taxable except those that have been exempted under section 13 as mentioned under 6th Schedule of the Sales Tax Act, 1990. For sales tax purposes goods include every kind of movable property other than actionable claims, money, stocks, shares and securities.

IMPORTS INTO PAKISTAN

All goods imported into Pakistan are liable to sales tax at the time of import, except goods specifically exempted under section 13 as mentioned in Sixth Schedule to the Act.

EXEMPT GOODS

Under section 13 of The Sales Tax Act 1990, the Sixth Schedule of the Sales Tax Act, 1990 specifically and explicitly mentions those goods on which exemption of sales tax is available. Other exemptions are available through various notifications (SROs) issued by the Government under section 13.Sales Tax guide would help answer a lot of basic questions and avoid unnecessary mistakes or errors that normally a person is prone to making during registration and filing of their Sales Tax Return.

SALES TAX DUE DATES

Taxpayers belonging to their respective categories have to file Sales Tax returns in monthly, quarterly or annual return format.

MONTHLY RETURN

Under the standard procedure a registered person is required to file monthly return Annexure C on 10th and Payment on 15th and e-file return by the 18th day of the month following the period in which the supplies were made, in the designated Branches of National Bank of Pakistan. In case of certain categories as mentioned below Procedure has been devised to file return on monthly and quarterly basis.

QUARTERLY RETURN

The taxpayers falling exclusively in the category of CNG required to file the return on quarterly basis.

ANNUAL RETURN

A manufacturer is to file annual Sales Tax return, for a financial year by the 30th September of the following financial year.

APPEAL TO COMMISSIONER APPEALS

An appeal can be filed with the Collector (appeals) against the order-in-original passed by the Additional Collector, Deputy Collector, Assistant Collector and Superintendent.

LIMITATION OF APPEAL

An appeal before the Collector (appeals), has to be filed within thirty days of the receipt of decision or order passed by the Additional Collector, Deputy Collector, Assistant Collector or Superintendent.

CONDONATION OF DELAY

An appeal preferred after the expiry of thirty days may be admitted by the Collector (appeals). If he is satisfied that the appellant has sufficient cause for not preferring the appeal within the specified period.

SETTLEMENT OF APPEAL

The Collector of Sales Tax (appeals) may, after giving both parties to the appeal an opportunity of being heard, pass such order as deemed fit, confirming, varying, altering, setting aside or annulling the decision or order appealed against.

APPEAL TO THE APPELLATE TRIBUNAL

An appeal can be filed against the order of the Collector (appeals) before the Appellate Tribunal.

LIMITATION AND COMPUTATION OF TIME

The limitation for preferring an appeal against any order or decision of an officer of Sales Tax under the Act is 60 days from the date of receipt of such order or decision. The day on which the order is passed and the period up to issue and receipt of the order is to be excluded in computing the period of limitation of 60 days.

CONDONATION OF DELAY

The Appellate Tribunal has been empowered to condone the delay in filing the appeal, if it is satisfied that the appellant had sufficient cause for not filing the appeal within time.

REFERENCE TO HIGH COURT

PERSONS LEGIBLE TO FILE REFERENCE TO THE HIGH COURT

The person aggrieved by the order of Appellate Tribunal may prefer an application to the High Court.

LIMITATION OF TIME

The reference has to be filed within ninety days of the communication of the order of the Appellate Tribunal.

ISSUES ON WHICH REFERENCE CAN BE FILED

Reference to the High Court can be filed if a question of law arises out of the Appellate Tribunal’s order, against which application is being preferred.

SALES TAX RATES

Three different rates in the slabs have been maintained unless they happen to be exempt from sales tax under the sixth schedule to the Sales Tax Act, 1990.

Sales tax on services is 16% alongwith reduced rate implemented through S.R.O 495 (I)/2016 in Islamabad Capital territory.

INCOME TAX DUE DATES

INCOME TAX REFUND

Refund can be only claimed if the person has filed their Income Tax Return electronically. A manual Return does not entitle you to a refund.

The refund amount should be clearly reflected in your Income Tax Return in Iris.

Refund resulting from the Income Tax Return can be claimed by filing a separate application in Iris. To check the status of your application, please visit your relevant Regional Tax Office (RTO).

The refund can also be claimed later on after submitting your Income Tax Return, but within two years from the date of filling of return (date of assessment) or from the date on which the tax was paid, whichever is later.

INCOME TAX appeal

RIGHT OF APPEAL

Most appeals arise on account of disagreement between the taxpayer and the tax collectors (Inland Revenue department) regarding the quantification of the taxable income and tax liability thereon as well as levy of default surcharge, penalties, etc.

To resolve such disagreements, law lays down the procedure, which gives the taxpayer right of appeal before the Commissioner (appeals) and if still not satisfied, a further right of appeal before the Appellate Tribunal and Higher Courts of the country.

PERSONS ELIGIBLE TO APPEAL

Any person dissatisfied with any order passed by a Commissioner/Officer Inland Revenue has the right of appeal.

In case of an Individual, the Individual himself; in case of an Association of Person (AOP), any partner or member of the association; and in case of a Company the principal officer.

In case of a deceased individual, the legal representatives of the deceased; and in case of an individual under legal disability or a non-resident person, his/her/it’s “representative”.

REQUIREMENTS FOR MAKING AN APPEAL

In order to make an appeal person has to submit the tax due along with the return of income, on the basis of income declared.

TIME LIMIT FOR MAKING AN APPEAL

Time limit for filing an appeal before the Commissioner (appeals) is thirty (30) days from the date of receipt of notice of demand relating to an assessment, penalty or any other order.

Three different rates in the slabs have been maintained unless they happen to be exempt from sales tax under the sixth schedule to the Sales Tax Act, 1990.Sales tax on services is 16% along with reduced rate implemented through S.R.O 495 (I)/2016 in Islamabad Capital territory.

INCOME TAX RULES IN PAKISTAN

INCOME TAX BASICS

Before Registration and Filing of your Income Tax Return, it is recommended that one should establish basic understanding regarding these processes. Knowledge of basic concepts would not only ensure that the tasks are performed easily but also in the prescribed manner.

TAXABLE INCOME

Taxable Income means Total Income reduced by donations qualifying straight for deductions and certain deductible allowances.

TOTAL INCOME

Total Income is the aggregate of Income chargeable to Tax under each head of Income.

HEAD OF INCOME

Under the Income Tax Ordinance, 2001, all Income are broadly divided into following five heads of Income:

Salary

Income from property

Income from business

Capital gains

Income from Other Sources

RESIDENT

An Association of Persons is Resident for a Tax Year if the control and management of its affairs is situated wholly or partly in Pakistan at any time in that year;

A Company is Resident for a Tax Year if :

It is incorporated or formed by or under any law in force in Pakistan;

The control and management of its affairs is situated wholly in Pakistan at any time in the year; or

It is a Provincial Government or a local Government in Pakistan.

An individual is Resident for a Tax Year if he/she:

Is present in Pakistan for a period of, or periods amounting in aggregate to, 183 days or more in the Tax Year;

Is an employee or official of the Federal Government or a Provincial Government posted abroad in the Tax Year.

NON-RESIDENT

An Association of Persons, a Company and an Individual are Non-Resident for a Tax Year if they are not Resident for that year.

PAKISTAN SOURCE INCOME

Is defined in section 101 of the Income Tax Ordinance, 2001, which caters for Incomes under different heads and situations. Some of the common Pakistan source Incomes are as under: –

Salary received or receivable from any employment exercised in Pakistan wherever paid;

Salary paid by, or on behalf of, the Federal Government, a Provincial Government, or a local Government in Pakistan, wherever the employment is exercised;

Dividend paid by Resident Company;

Profit on debt paid by a Resident Person;

Property or rental Income from the lease of immovable property in Pakistan;

Pension or annuity paid or payable by a Resident or permanent establishment of a Non-Resident;.

FOREIGN SOURCE INCOME

Is any Income, which is not a Pakistan source Income.

PERSON

An Individual;

A Company or Association of Persons incorporated, formed, organized or established in Pakistan or elsewhere;

The Federal Government, a foreign government, a political subdivision of a foreign government, or public international organization

COMPANY

A Company as defined in the Companies Ordinance, 1984 (XLVII of 1984);

A body corporate formed by or under any law in force in Pakistan;

A modaraba;

A body incorporated by or under the law of a country outside Pakistan relating to incorporation of Companies;

An amendment has been made through Finance Act, 2013 to enlarge the scope of definition of a Company. Now as per Income Tax Ordinance, 2001 a company includes:

A co-operative society, a finance society or any other society;

A non-profit organization;

A trust, an entity or a body of persons established or constituted by or under any law for the time being in force.

A foreign association, whether incorporated or not, which the Board has, by general or special order, declared to be a company for the purposes of this Ordinance;

A Provincial Government;

A Local Government in Pakistan;

A Small Company

ASSOCIATION OF PERSONS

Includes a firm (the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all), a Hindu undivided family, any artificial juridical person and any body of persons formed under a foreign law, but does not include a Company.

TAX YEAR

Is a period of twelve months ending on 30th day of June i.e. the financial year and is denoted by the calendar year in which the said date falls. For example, tax year for the period of twelve months from July 01, 2017 to June 30, 2018 shall be denoted by calendar year 2018 and the period of twelve months from July 01, 2018 to June 30, 2019 shall be denoted by calendar year 2019. It is called Normal Tax Year.

SPECIAL TAX YEAR

Means any period of twelve months and is denoted by the calendar year relevant to the Normal Tax Year in which closing date of the Special Tax Year falls. For example, Tax Year for the period of twelve months from January 01, 2017 to December 31, 2017 shall be denoted by calendar year 2018 and the period of twelve months from October 01, 2017 to September 30, 2018 shall be denoted by calendar year 2019.

Basic concepts on Income Tax would help answer a lot of fundamental questions, avoiding unnecessary mistakes or errors that normally arise during Registration and Filing of Income Tax Return