Sales Tax in Pakistan – A Comprehensive Guide

Sales tax is one of the most significant sources of revenue for the Government of Pakistan. It is imposed on the supply of goods and provision of services at various stages of production and distribution. Governed federally and provincially, sales tax is a form of indirect tax that ultimately falls on the end consumer but is collected and deposited by registered businesses. This comprehensive guide explains the types, legal framework, applicable rates, registration procedures, filing requirements, input tax adjustments, exemptions, penalties, and compliance obligations associated with sales tax in Pakistan.

Legal Framework for Sales Tax in Pakistan
The sales tax system in Pakistan is governed by both federal and provincial laws due to the constitutional division of taxing rights after the 18th Amendment. The major legal instruments are:

• Sales Tax Act, 1990 (Federal) – For goods and certain services in Islamabad Capital Territory

• Federal Excise Act, 2005 – For excisable services in ICT

• Provincial Sales Tax Laws:

  • Sindh Sales Tax on Services Act, 2011

  • Punjab Sales Tax on Services Act, 2012

  • Khyber Pakhtunkhwa Finance Act, 2013 (Chapter III)

  • Balochistan Sales Tax on Services Act, 2015

Types of Sales Tax in Pakistan

1. Sales Tax on Goods
This is levied by the Federal Board of Revenue (FBR) under the Sales Tax Act, 1990 and applies across the country, except where provincial exceptions exist. It applies to:

• Import of goods

• Manufacturing and production

• Wholesale and retail supply

• Electricity and gas supplies

2. Sales Tax on Services
This is levied by provincial revenue authorities or by FBR in the case of Islamabad. Each province has its own law, tax rate, and procedures. Services such as construction, telecom, IT, hotels, and advertising are commonly taxed.

Sales Tax Authorities in Pakistan

• Federal Board of Revenue (FBR) – for goods and ICT services

• Sindh Revenue Board (SRB)

• Punjab Revenue Authority (PRA)

• Khyber Pakhtunkhwa Revenue Authority (KPRA)

• Balochistan Revenue Authority (BRA)

Each authority has its own registration, filing, and enforcement processes.

Sales Tax Registration Requirements

Who Needs to Register for Sales Tax?

• Manufacturers and importers of taxable goods

• Wholesalers, distributors, and retailers with annual turnover exceeding Rs. 10 million

• Service providers as notified by provincial laws

• Any person liable to collect or deduct sales tax

Documents Required for Registration

• CNIC of owner/directors

• Business NTN

• Business bank account details

• Proof of business premises (rental agreement or ownership document)

• Utility bills

• Photographs and biometric verification

Registration Portals

• FBR: https://iris.fbr.gov.pk

• PRA: https://e.pra.punjab.gov.pk

• SRB: https://e.srb.gos.pk

• KPRA: https://www.kpra.gov.pk

• BRA: https://www.bra.gob.pk

Upon registration, a Sales Tax Registration Number (STRN) is issued.

Sales Tax Rates in Pakistan

Sales Tax on Goods (FBR)

• Standard Rate: 18% (revised from 17%)

• Reduced Rates: 5%, 10%, 12%, etc., for specific sectors (e.g., fertilizers, steel, ghee)

• Zero-Rated: Exporters under Fifth Schedule

• Exemptions: Under Sixth Schedule of the Sales Tax Act, 1990

Sales Tax on Services (Province-wise Standard Rates)

Reduced rates may apply to digital, POS-integrated, or IT service providers.

Filing of Sales Tax Returns

Frequency: Monthly
Due Date: 15th of the following month (some provinces extend to 18th or 21st)

Required Documents and Data

• Sales tax invoices issued during the month

• Purchase records and input tax invoices

• Debit/credit notes

• Stock records (if applicable)

Online Filing Process

1. Log in to the relevant authority’s portal

2. Input sales and purchase data

3. Reconcile output and input tax

4. Submit return

5. Generate CPR (Computerized Payment Receipt)

6. Deposit tax through e-payment or bank challan

Input Tax Adjustment

Registered businesses can claim credit of input tax paid on:

• Raw materials and components

• Utility bills used in business

• Purchases from registered persons

• Services used for business operations

Input Tax Cannot Be Claimed On

• Non-business expenses

• Purchases from unregistered persons

• Entertainment or personal expenses

• Fake or unverified invoices

Cross-Input Adjustment Restrictions

• Input from sales tax on goods cannot be claimed against provincial service output tax (and vice versa)

• Some provinces restrict cross-province invoice adjustments

Zero-Rating and Exemptions

Zero-Rated Supplies (Fifth Schedule)

• Exports

• Supplies to diplomats

• Certain renewable energy products

• Supplies to certain international organizations

Exempt Supplies (Sixth Schedule)

• Unprocessed agricultural products

• Books and educational materials

• Medicines

• Human blood and its components

• Basic food items like wheat, pulses, and rice

Invoices and Record-Keeping Requirements

Registered persons must issue serially numbered tax invoices containing:

• Name and STRN of supplier and buyer

• Description of goods/services

• Value and applicable tax

• Date and unique invoice number

Records must be kept for at least 6 years and made available for audit or inspection.

Sales Tax Withholding

Certain entities are required to withhold sales tax when making payments to suppliers. These include:

• Government departments

• Public sector companies

• Large-scale corporations

• Registered withholding agents (as notified)

Withheld tax must be deposited and reported in monthly returns.

Sales Tax Refunds

Refunds may be claimed by:

• Exporters of zero-rated goods

• Input tax exceeding output tax in certain sectors

• Erroneous payments or overpayments

Refund application must be filed through the FASTER system (FBR) or respective provincial portals. Supporting documents include:

• Export GDs

• Invoices

• CPRs

• Bank credit advice

Penalties and Consequences of Non-Compliance

Audits and Assessments

Sales tax audits may be conducted by:

• FBR (Federal Audit Wing)

• SRB, PRA, KPRA, BRA (Provincial Audit Directorates)

Taxpayers are required to:

• Submit records within a stipulated time

• Cooperate with auditors

• Justify input/output reconciliation

Sales Tax for E-Commerce and Freelancers

• Digital service providers are taxable under provincial laws

• Freelancers with local clients may be required to register for sales tax

• E-commerce platforms are being integrated with FBR’s Track and Trace and POS systems

• Non-resident service providers may be subject to FED in ICT

Recent Reforms and Automation Initiatives

• Implementation of Track and Trace System for tobacco, sugar, cement, and beverages

• Launch of POS Integration for retailers

• Real-time invoice reporting through e-invoicing systems

• Introduction of Single Portal for Sales Tax (in progress for harmonization)

• Provincial tax authorities integrating with NADRA and FBR databases for compliance checks

Challenges in Sales Tax Administration

• Multiple jurisdictions and duplicate compliance for interprovincial businesses

• Tax evasion through under-invoicing and undocumented sales

• Lack of harmonization in rates, laws, and procedures

• Refund delays, especially in export sectors

• Limited awareness among SMEs and service providers

How Sterling.pk Can Help You

At Sterling.pk, we provide expert sales tax services including:

• Sales tax registration with FBR and all provincial authorities

• Monthly return filing and tax computation

• Withholding agent support and statement filing

• Audit handling and legal representation

• Refund processing and compliance advisory

• Digital POS and invoice system implementation

Our professional team ensures that your business stays compliant, avoids penalties, and benefits from all legal credits and exemptions.

Conclusion
Sales tax is a cornerstone of Pakistan’s revenue generation system, applicable to both goods and services. Understanding the jurisdiction, applicable rates, exemptions, and compliance obligations is critical for every business. While the system is evolving towards digitization and transparency, it remains complex due to overlapping laws and administrative frameworks. Whether you’re a manufacturer, trader, service provider, or exporter, compliance with sales tax laws is essential for business sustainability and legal security. With the expert support of Sterling.pk, businesses can navigate this complex landscape with ease and confidence.