7 Golden Rules for Sales Tax Compliance and Filing

Retail Price (Third Schedule):

The First of the 7 Golden Rules for Sales Tax Compliance and Filing: The price of the goods included in the Third Schedule is fixed by the manufacturer or importer, and this price includes sales tax. A distributor or wholesaler cannot charge sales tax separately on these products. They include most of the daily use items, and they are subject to levied at the standard rate of 18%. The retail price and sales tax are clearly stated on the label, cover, container, package or packet of these products. Some examples of Goods specified in theTHIRD SCHEDULE are Fruit Juices and Vegetable Juices, Detergents, Ice Cream, Mineral / Bottled water and Other household and specified items

The Second of the 7 Golden Rules for Sales Tax Compliance and Filing: Zero-rated supplies

Zero-rated supplies are those supplies on which the sales tax rate is zero percent, meaning no sales tax is levied on them. All goods that are exported from Pakistan or are included in the Fifth Schedule are considered zero-rated. However, in some cases, zero-rating does not apply, for example: If an item is exported from Pakistan but later re-imported into Pakistan. Or if an item is cleared for export but is not actually exported.

A sales tax invoice will be issued for such products and zero-rated will be levied on them. The person supplying these goods will be required to register for STRN. Zero rated supplies are eligible for input adjustment.

Example 1

A sample of supplies contained in fifth schedule are.

Supplies of raw materials, components and goods for further manufacture of goods in the

Export Processing Zone.

Supply to diplomats, diplomatic missions, privileged persons and organizations

Exempt Goods

The Third of the 7 Golden Rules for Sales Tax Compliance and Filing is to know about the exempt supplies on which sales tax is not applicable at all; they are called “exempt goods”. To declare a good as exempt, we have to refer to the Sixth Schedule , which contains the complete list of exempted goods.

If a person is supplying only exempt goods, then registration for STRN is not mandatory. However, whatever input tax is involved in exempt supplies, it cannot be adjusted nor can it be refunded. No sales tax invoice is also issued for these goods.

Input Adjustment for Exempt Goods:

Now the question arises that if a person is supplying exempt goods, and he has purchased such goods from a person who has charged sales tax, then in such a case the buyer will neither get a refund nor can the input tax be adjusted. The levy that has been deducted will become part of his cost of purchase. The burden of input levy ultimately has to be borne by the end consumer If the goods worth Rs. 1 lakh and paid 18% sales tax i.e. Rs. 18,000 on it, then the total amount paid will be Rs. 118,000, Since no refund for input levy is available, the full amount will now become the cost of production.

Special Rates (Eight Schedule)

The Fourth of the 7 Golden Rules for Sales Tax Compliance and Filing:  Some goods are taxed as per the standard rates but special rates, conditions and restriction applied which are described in the EIGHTH SCHEDULE. A sample is mentioned below.

For examples.

1. Supply of locally manufactured articles of jewellery, or parts thereof, of precious metal or of metal clad with precious metal will be levied at the rate of 3 % but No input tax shall be adjusted
2. Drugs under the Drugs Act, 1976 shall be levied at the rate of 1 %. Subject to the conditions that Tax charged and deposited by the manufacturer or importer shall be final and no adjustment of input tax shall be allowed.

Levy on Mobile Phones) Ninth Schedule

The Fifth of the 7 Golden Rules for Sales Tax Compliance and Filing :In this schedule the rates of Cellular mobile phones or satellite phones is mentioned, the rate of taxes on basis of import value per set is :

1. If value not exceeding 500$ then rate shall be 18% and if the value is more than 500$ then rate shall be 25%.

Tax On Bricks Tenth Schedule

Under this schedule the bricks, cement or concrete blocks shall be levied on fixed rates based on area and region and a fixed amount is payable per month.

    Table 1

 Table 2

The last of the 7 Golden Rules for Sales Tax Compliance and Filing:

 (Thirteenth Schedule)

For industries related to steel production shall be levied on electricity consumption and collected through monthly electricity bills. What this means is that the FBR has made a rule that if a steel production unit consumed a certain amount of electricity, it will be assumed that such unit produced that amount of steel. The minimum production rules have been laid down based on electricity consumption, means Both minimum and actual production have to be shown in the monthly return. If the minimum production is more than the actual production, tax will be collected on the basis of minimum production, .and if the actual supply exceeds minimum production in the following month then the excess paid shall be adjusted.

Table 3

The tax due at the end of the financial year will be calculated on the basis of minimum production only. If the amount been paid in excess, it will neither be adjusted nor refunded.

Final Thoughts:

In this blog we have explained all of 7 Golden Rules for Sales Tax Compliance and Filing for guide and awarness of the taxpayers, business, consultants and other users.  If you need any further guidance regarding this matter, please get in touch with us through our website by filling out the Contact Us form, or reach out via our social media accounts.