Sales tax withholding comparison and exceptions under federal and provincial sales tax laws

Sales tax withholding comparison and exceptions under federal and provincial sales tax laws.

Rules relating to sales tax withholding and exception therefrom under federal and provincial sales tax laws are summarized hereunder:

1. Supply of goods (in any territory) and rendering of services in Islamabad:

For supply of goods (in any territory) and rendering of services in Islamabad, sales tax is withheld;

• @ 20% of the sales tax charged in the invoice by a registered vendor; and
• @ 1% of the gross invoice amount from a vendor that is unregistered but liable to be registered.

However sales tax withholding will not apply to the supplies of the following goods and services if made by a registered person, namely:–

(i) Electrical energy;

(ii) Natural gas;

(iii) Petroleum products as supplied by petroleum production and exploration companies, oil refineries, oil marketing companies and dealers of motor spirit and high speed diesel;

(iv) Registered persons paying sales tax under Chapter XI of the Sales Tax Special Procedure Rules, 2007, except those paying sales tax on ad valorem basis at standard rate;

(viii) Vegetable ghee and cooking oil;

(ix) Telecommunication services ;

(x) Goods specified in the Third Schedule to the Sales Tax Act, 1990;

(xi) Supplies made by commercial importers who paid value addition tax on such goods at the time of import as prescribed under Chapter X of the Sales Tax Special Procedure Rules, 2007; and

(xii) Supplies made by active taxpayer as defined in STA 1990 to registered person except for advertisement services.

2. Services obtained in Punjab:

For services obtained in Punjab, sales tax is withheld

• @ 100% of sales tax charged in the invoice by a registered vendor; and
• @ 100% of applicable rate of sales tax, if services are obtained from unregistered vendor that is liable to be registered.

Sales tax withholding shall not apply to

• Telecommunication,
• Banking,
• Courier,
• Insurance, and
• Services, other that the advertisement services, provided by corporate sector persons registered with the authority.

3. Services obtained in KPK:

For services obtained in KPK, sales tax is withheld:

• @20% of sales tax charged in the invoice, if services are received from registered vendor who is also active for sales tax.
• @100% of sales tax charged in the invoice, if services are received from registered vendor who is inactive for sales tax.
• @ 100% of applicable rate of sales tax, if services are obtained from unregistered vendor that is liable to be registered.

4. Services obtained in Sindh:

For services obtained in Sindh, sales tax is withheld:

• @20% of sales tax charged in the invoice, if services are received from a registered vendor.
• @ 100% of applicable rate of sales tax, if services are obtained from registered vendor and the amount of sales tax is not indicated on the invoice.
• @ 100% of applicable rate of sales tax, if services are obtained from unregistered vendor that is liable to be registered.

Sales tax withholding shall not apply to:

• Telecommunication,
• Banking companies,
• Financial institutions, insurance companies (other than re-insurance).
• Port operator,
• Airport operator,
• Terminal operator,
• Airport ground services.

5. Services obtained in Balochistan:

• @20% of sales tax charged in the invoice, if services are received from a registered vendor.
• @ 100% of applicable rate of sales tax, if services are obtained from unregistered vendor that is liable to be registered.

Sales tax withholding shall not apply to:

• Telecommunication,
• Banking companies,
• Financial institutions, insurance companies (other than re-insurance).
• Port operator,
• Airport operator,
• Terminal operator,
• Airport ground services.

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Difference between Sales Tax and VAT (Value Added Tax)

So, many people have questions regarding the difference between Sales Tax and VAT.

This is due to the fact that in countries where Sales Tax is applicable people are generally unaware of V A T whereas in the countries where VAT is applicable people are unaware of Sales Tax.

In simple words, Sales Tax is basically applicable on the goods and services on the retail price that is the end price whereas VAT on the other hand is applicable on all the stages of production of those goods that is manufacturing stage, distribution stage, wholesale stage, retail stage etc.

Unlike VAT, Sales Tax is imposed on the total value of goods and services purchased.

The Sales Tax is collected one time by the retailer whereas the Value Added Tax is collected by all the sellers at various stages of production.

Although, the burden of tax in both Sales Tax and VAT falls upon the end consumer, however, the payment of these taxes is made by all the purchasers in VAT as compared to single end consumer in the case of Sales Tax.

The rate of Sales Tax is generally high as compared to the rate of VAT due to the fact that the Sales Tax is applicable one time generally where as the VAT is applicable on various stages of value addition.

Both the taxes are indirect of nature. Also, the treatment of adjusting Input and Output taxes is also similar in both Sales Tax and VAT.

It is generally believed that the model of VAT as compared to Sales Tax is more effective as it brings all the stages of value addition under tax net where as in Sales Tax certain stages remain unaccounted for.

In general the rate of Sales Tax in various countries remains between 17% to 25% where as the rate of VAT fluctuates between 5% to 12%.

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