karachi tax bar association general concepts of sales tax on goods mazhar saleem shah director tax...

Karachi Tax Bar Association

General Concepts of Sales Tax on Goods

Mazhar Saleem ShahDirector TaxKPMG Taseer Hadi & Co.Karachi

09 January 2015

2© 2014 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

Coverage of the Presentation

Legal framework – Main statute, Rules, notifications, general orders (STGOs), and circular letters issued by FBR.

Basic concepts when sales tax on taxable goods triggers

Sales Tax Regimes

Disclosures in sales tax returns

Understanding implications under FBR’s Withholding Sales Tax Rules

3

Legal framework Legal framework


Sales Tax on Goods and Services

Sales Tax Act, 1990 [ST Act] applies on import & supply of taxable goods all over Pakistan except FATA, PATA & AJ&K.

ST Act applies on taxable services as per Islamabad Capital Territory Sales Tax Ordinance, 2001 and Baluchistan Sales Tax Ordinance, 2000.

ST Act applies on services subject to levy of FED in sales tax mode (limited application)

Federal Board of Revenue [FBR] is authorized for administration and collection of sales tax levied under the ST Act.


Important provisions of ST Act

From concepts and compliance point-of-view, following provisions (23 Nos.) are very important:

Section 2: Definitions Section 3: Scope of tax (output tax)Section 4: Zero-ratingSection 5: Change in the rate of taxSection 6: Time and manner of payment Section 7: Determination of tax liability (input tax) Section 8: Tax credit not allowed (inadmissible input tax)Section 8B: Adjustable input taxSection 9: Debit and Credit Notes Section 10: Refund of input taxSection 11: Assessment and recovery


Important provisions of ST Act

Section 22: RecordsSection 23: Invoicing Section 24: Retention of recordsSection 26: ReturnSection 33: Penalty Section 34: Default surchargeSection 49: Sale of taxable activity (Merger and acquisitions)Section 57: Rectification of mistakesSection 59: Tax paid on stocks acquired before registrationSection 66: Refund (Refunds other than excess input tax)Section 73: Certain transaction not admissibleSection 74: Condonation of time limit


Operative Schedules to ST Act

Third Schedule Goods taxable on MRP

Fifth Schedule Zero-rated goods

Sixth Schedule Exempt goods

Eight Schedule Goods taxable at 5% goods

Ninth Schedule GST on cellular/satellite phones


Rules and important notifications

Sales Tax Rules, 2006Sales Tax Special Procedure Rules, 2007Sales Tax Special Procedure (Withholding) Rules, 2007

Notifications:

SRO.445(I)/2004SRO.488(I)/2004SRO.647(I)/2007SRO.509(I)/2013SRO.648(I)/2013

SRO.190(I)/2002SRO.490(I)/2004SRO.1125(I)/2011SRO.212(I)/2014


Sales Tax Rules, 2006

Registration Filing of returns Credit and Debit note and Destruction of goods Apportionment of input tax Refund Special Audit Zero rating of supplies against International Tender for Afghan Refugee Taxpayers’ authorized representative Alternate dispute resolution Recovery Issuance of electronic sales tax invoices


Sales Tax Special Procedures Rules, 2007

Payment of sales tax by retailers Collection and payment of sales tax on electric power Collection and payment of sales tax on natural gas Collection and payment of extra on supplies of electric power and natural

gas consumed by unregistered or inactive person Supply of sugar to TCP Collection and payment of sales tax by Oil Marketing Companies Collection and payment of sales tax by vehicle dealer Payment of sales tax by importer Payment of sales tax by steel-melter, re-roller and ship breakers Payment of sales tax by wholesale cum retail outlets Payment of Extra sales tax on specified goods Procedures for the goods specified in Sr. No. 13 of the Fifth Schedule to

the ST Act

11

Basic concepts Basic concepts


Scope of Sales Tax – Section 3 (Output tax)

Sales tax shall be charged, levied and paid at the rate of 17% of the value of:

Taxable supplies made by a registered person in the course or furtherance of any taxable activity.

Goods imported into Pakistan.

Output tax means sales tax levied U/S 3 of ST Act, FED in sales tax mode and Provincial sales tax (but not SST, PST and KPK-ST).

Further tax at 1% is applicable on supply to taxable goods to person who has not obtained registration. Immunity from levy of further tax provided to specified persons under SRO.648(I)/2013, dated 09 July 2013.


Key definitions for concept building

Supply [Section 2(33)] Taxable supply [Section 2(41)] Value of supply [Section 2(46)] Time of supply [Section 2(44)] Registered person [Section 2(25)] Manufacturer; [Section 2(17)] Taxable activity [Section 2(35)] Taxable goods [Section 2(39)] Input tax [Section 2(14)] Output tax [Section 2(20)] Cottage industry [Section 2(5AB)] Provincial sales tax [Section 2(22A)] Goods [Section 2(12)]

cont


What constitutes a ‘supply’ for sales tax?

Supply [Section 2(33)]

Sale or Other transfer of the right to dispose off goods as owner Sale or transfer under a hire purchase agreement Auction or disposal to satisfy a debt owned by a person Putting to private, business or non-business use of goods produced in the

course of taxable activity for the purposes other than those of making a taxable supply

Taxable supply [Section 2(41)]

Supply of taxable goods made by importer, manufacturer, wholesaler, distributor or retailers and includes supply of goods subject to sales tax at zero percent rate.


Value for sales tax – Section 2(46)

Value of supply” means in respect of taxable supply, the consideration in money received for that supply, including Federal and Provincial duties and taxes, excluding sales tax.

Trade discount may be deducted from the value provided:

Discounted price and related tax is shown on the sales tax invoice Discount allowed is in conformity with normal business practice

Transaction / declared value is not acceptable when the transaction is between associates or when it is difficult to ascertain the price of the taxable goods. In such situations, value is taken at ‘open market price’.

FBR also empowered to fix / prescribe minimum values of certain taxable goods through notification. Examples are bagasse, coal, CNG, steel melter, re-rollers, computer hardware, etc.


Time of supply – Section 2(44)

Time of supply means earlier of:

Time at which the goods are delivered or

Made available to the recipient of the supply or

Time when any payment is received by the supplier (advance against sale).

In relation to hire purchase agreement, the time of supply is when the agreement is entered into.


Input tax – Section 2(14)

Input tax means:

Tax levied under ST Act on supply of taxable goods

Tax levied on import of goods

Tax levied in sales tax mode under Federal Excise Act (both goods and services)

Provincial sales tax on services

Sales tax charged by registered person in AJ&K.


Determination of tax liability – Section 7

Subject to provisions of Sections 8, 8B & 73 of ST Act, input tax can be deducted from output tax (excluding the amount of further tax) provided that:

Such input tax is either paid or payable [180 days as per Section 73]

Such input tax is meant for the purpose of taxable supplies made or to be made

Such input tax is subject to adjustments through debit / credit notes as per Section 9.

Such input tax is adjusted within six months timeframe.


Inadmissible input tax – Section 8 read with SRO.490(I)/2004

The goods or services not used or not to be used for taxable supplies made or to be made.

Specified goods through official notification Goods subject to extra tax Goods and services where sales tax has not been deposited by supplier CREST discrepancy related goods Fake invoices Goods and services not related to the taxable supplies made Goods and services acquired for personal or non-business consumption Goods used for immoveable property except production related Vehicles

Input tax that is attributable to exempt goods where the registered person is engaged in supply to taxable and exempt goods simultaneously [only residual input tax after applying rule of apportionment is admissible].


Refunds – Sections 10 & 66

Refund in case of Zero-rated local supplies/exports

Carry forward and Refund in case of other than zero-rated local

supplies or exports

Refund to be filed within one year in case any sales tax paid by

way of inadvertence, error , or misconception and time barred

input tax adjustments

21

Sales Tax Regimes Sales Tax Regimes


Sales Tax Regimes

Normal sales tax regime – Standard rate 17% or 17+1% Zero-rating regime Reduced sales tax rate regime under VAT mode Higher sales tax regime under VAT mode Fixed sales tax regime - No input tax adjustment Extra tax regimes Withholding sales tax regime


GST on Retail price for Third Schedule items

Goods specified in 3rd Schedule shall be charged at 17% of retail price.

Retail price and sales tax shall be printed by the manufacturer on each packet.

Retail price means the price fixed by the manufacturer inclusive of all duties, charges and taxes (other than sales tax)


Goods under Third Schedule

Fruit and vegetable juices. Ice cream. Aerated waters or beverages. Syrups and squashes. Cigarettes. Toilet soap Detergents Shampoo Toothpaste Shaving cream Perfumery and cosmetics Tea Powder drinks Milky drinks Toilet and tissue paper Spices branded Shoe polish and cream Fertilizers Cement sold in retail packing


Zero rated goods

Under Section 4 to the ST Act, following goods shall be charged at zero percent

Goods exported.

Goods specified in the Fifth Schedule.

Supply of goods for consumption aboard a conveyance proceedings to a destination outside Pakistan.

Goods specified by Federal Government through notifications.


Zero rated goods

Following items inter alia specified under Fifth Schedule

Supply of ships and aircrafts and related supplies.

Supplies to diplomats, diplomatic missions, privileged persons and privileged organizations.

Supplies to duty free shops.

Supplies of raw materials and goods for manufacturing in EPZ.

Supply of locally manufactured plant and machinery to EPZ and E&P companies with conditions.

Supplies under DTRE.


Zero rated goods

Imports and supplies made to Gwadar special economic zone.

Goods exempted but exported by specified manufacturer.

Petroleum Crude oil.

Raw material, sub-component used in manufacturing of plant and machinery subject to sales tax at zero percent subject to certain conditions.

Various stationary items and diary products subject to certain conditions and restrictions as specified in Chapter XIV of Sales Tax Special Procedures Rules, 2007.


Exempt supplies

Supply and import of following goods shall be exempt from sales tax

Goods specified in the Sixth Schedule

Goods specified by the Federal Government

Goods specified by the FBR, by special order stating the reasons

Exemption may be full or partial

Exemption through a notification or special order may be allowed from any previous date specified.


Exempt supplies- Sixth Schedule

Live animals and poultry Fish (excluding live) Live plants, bulbs, roots Meat of bovine animal Eggs Edible vegetables and fruits Pulses Spices Cereals Sugar beet Sugar cane Edible oil and vegetable ghee (FED) Fruit juices Ice and water Poultry and cattle feed Silver and Gold (un worked)

Holly Quran Newsprint, newspaper , books, etc Currency notes etc Imports of sample Supplies against international

tenders Under Grants in Aid Supplies to Hospitals Certain surgical goods Imports by educational Personal baggage Uncooked poultry meat Milk and cream Flavoured milk Yogurt


Exempt supplies- Sixth Schedule

Whey Butter Desi Ghee Cheese Processed cheese not grated or

powdered Cotton seed Preparation for infant use, put up for

retail price Various stationary items

Substance registered under the Drug Act, 1976 and medicaments as classifiable under Chapter 30 of the First Schedule to the Custom Act, 1969

Raw material for basic manufacture of pharmaceutical active ingredients

Components or sub-components of energy saver lamps.

Goods imported for subsequent exportation.

Various items dedicated for use of renewable source of energy

Various medical equipments Food stuff


Eight Schedule

Following goods as specified in Eight Schedule to the ST Act shall be charged to sales tax at reduced rate of 5% subject to conditions specified therein

Soyabean meal Oil cake Directly reduced iron Oilseeds meant for sowing Raw cotton and ginned cotton Plant and machinery manufactured locally

having no compatible local substitute Machinery and equipment for development of grain handling and storage

facilities Cool chain machinery and equipment Various items imported by Call Centers etc.

Contd


Supplies at reduced rate- Eight Schedule

Machinery, equipment, specialized vehicles etc. meant for mineral exploration phase.

Construction machinery, equipment etc. imported on temporary basis as required for the exploration phase

Complete plant for relocated industries Machinery, equipment and other capital goods meant for initial

installation, balancing, modernization, replacement for specified industries or facilities

Lifting Unit

33

Enhancing quality - Sales Tax Return

Enhancing quality - Sales Tax Return

36

Withholding Sales Tax

Withholding Sales Tax


Sales Tax Special Procedures (Withholding) Rules, 2007

Withholding Rules shall apply on supply of

• Taxable Goods and

• Taxable Services (Taxable under ICT & Baluchistan Sales tax Ordinances and Federal Excise Act)

Persons specified as withholding agents

• Federal and Provincial Government departments; • Autonomous bodies; • Public sector organizations, • Companies as defined under the IT Ordinance 2001, registered for ST, FED

or income tax purposes.• Recipient of advertisement services, who are registered for sales tax• Persons registered as exporters


Sales Tax Special Procedure (Withholding) Rules, 2007

Withholding Agent [Purchaser]

Supplier’s Status

Supplier’s category of registration

Rate of GST Withholding

Government authority/organization

Registered Person

Wholesaler, dealer (petroleum dealer)

or distributor 1/10th of Sale Tax Amount

Others 1/5th of Sales Tax Amount

Unregistered Person

N/A 17% or at the applicable rate

of sales tax

Companies (registered for sales tax/excise/

income tax) and registered Exporters

Registered Person

Wholesaler, dealer (petroleum dealer)

or distributor 1/10th of Sale Tax Amount

Others 1/5th of Sales Tax Amount

Unregistered Person

N/A 1% of gross value of

supplies


No Withholding Sales Tax

THANK YOU

Electrical energy Natural gas Petroleum products supplied by petroleum production and

exploration companies, oil refineries and oil marketing companies Mild steel products Products made from sheets of iron or non-steel alloy, stainless

steel or other alloy steel, such as pipes, almirahs, trunks etc. Paper, in rolls or sheets Vegetable ghee and cooking oil Plastic products including pipes Goods falling under the Third Schedule to the Sales Tax Act,

1990 Goods supplied by commercial importers on which Value

Addition Tax has been paid at import stage Telecommunication Services


THANK YOU

karachi tax bar association general concepts of sales tax on goods mazhar saleem shah director tax...

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