Indirect tax

Indirect tax - Pakistan

01 Jan 20256 min read

This tax guide provides an overview of the indirect tax system and rules to be aware of for doing business in Pakistan.

Indirect tax snapshot
What are the current rate(s) of indirect tax?	Standard rate of 17% for most of goods and 15% to 16% for most of services. Reduced rates for certain goods and services are also applicable subject to respective conditions applicable thereto. Zero-rate of tax is applicable for export of goods and certain services.
Are there any confirmed or anticipated changes to these rates?	Majority of changes are usually notified by end of June each year which are applicable from first day of July, ie start of fiscal year in Pakistan.
What is the principal indirect tax?	General Sales Tax is the principal indirect tax in Pakistan for goods. It is applicable on taxable supplies and imports. While Provincial Sales Tax is applicable on the provision of services within/from provinces.
Is there a registration limit for the tax?	No pecuniary limit. Every manufacturer, importer, wholesaler, distributor or dealer is required to obtain.
Does the same registration limit apply to non-established businesses?	registration for General Sales Tax Purpose. While the provision of taxable service as envisage in the taxable schedules of respective provincial laws is the primary criteria for the registration under provincial sales tax laws. Not applicable.
Does a non-established person need to appoint a fiscal representative in order to register?	Not applicable.
How often do returns have to be submitted?	Sales tax returns are normally required to be submitted on monthly basis.
Are penalties imposed for the late submission of returns/payment of tax?	Yes. Penalties are applicable for delayed submission of returns. Default surcharge is separately applicable for delay in payment of tax.
Are any other declarations required?	Quarterly and annual filings are also required in certain cases under federal and provincial laws.
Are penalties imposed in other circumstances?	Yes. Penalties are applicable for a range of errors or omissions.
Can the tax incurred by overseas businesses be claimed if they are not registered in your country?	Not applicable.
Deduction of VAT	A registered person shall not be entitled to deduct input tax from output tax paid in respect of: transactions lacking evidence in support thereof gifts and giveaways food, beverages, garments, fabrics and other items for consumption or entertainment items not directly used in making taxable supplies.

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What is the principal indirect tax?

The principal indirect tax in Pakistan is General Sales Tax (GST) charged on taxable goods under Sales Tax Act, 1990 (the Act). GST is a Value Added Tax (VAT) in which the value added component at each stage of business transaction is taxed. GST is collectable from a registered person at import and charged by a registered seller of taxable goods. Tax credit or input tax is allowed when the registered person keeps proper record of claim regarding tax invoice and bill of entry. The goods meant for export were zero-rated. The tax paid on raw materials and other goods purchased in the course of business are deducted automatically while determining the tax liability. The system is based on self-assessment/clearance procedure and payment of tax.

Sales tax on service has also been introduced in Pakistan from 2011. Such tax is being charged, levied and collected by provincial governments in different provinces under their respective provincial legislations. Rate of tax on services varies from 13% to 16% in different provincial jurisdictions.

Is there a registration limit for the tax?

No pecuniary limit/threshold for registration is here. Every manufacturer, importer, wholesaler, distributor or dealer is required to obtain registration. A person required to be registered shall submit an application through the computerized system along with the following documents, namely:

CNIC of all owners, members, partners or directors, as the case may be, and the representative, if any, and in case of non-residents, their passports
in case of a company or registered AOP, the Registration or Incorporation Certificate, along with ‘Form-9’ and ‘Form-A’ as prescribed in the Companies Act, 2017
in case of a partnership, the partnership deed
bank account certificate issued by the bank in the name of the business
lease or rent agreement, if the premises are rented, along with CNIC of the owner of the premises
ownership documents of the premises, such as registered sale deed or registered transfer deed
latest utility bills (electricity, gas, land-line telephone, and post-paid mobile phones, as the case may be)
list of machinery installed, in case of manufacturer ix distribution certificate from the principal showing distributorship or dealership, in case of distributor or dealer x balance sheet/statement of affairs/equity of the business
particulars of all branches in case of multiple branches at
various locations
particulars of all franchise holders in case of national or international franchise.

Does the same registration limit apply to non-established businesses?

Not applicable.

Is there any specific legislation to tax non-resident supplies of electronically supplied/digital services to private consumers resident in your country?

Such services are subject to withholding of sales tax on services by the person making payment thereagainst.

Does a non-established business need to appoint a fiscal representative in order to register?

Not applicable.

How often do returns have to be submitted?

GST returns cover a tax period of one month, ending on the last day of a calendar month. A registered person is required to furnish its monthly return by 15th of next month. Payment of GST is also required to be made before submission of return.

Are penalties imposed for the late submission of returns/ payment of tax?

In case of sales tax on goods, a penalty of PKR 10,000 is applicable for delay in submission of return, in case the submission is made within ten days of the due date, a reduced penalty of PKR 200 for each day of default is applicable. Default surcharge at the rate higher of, 12% or KIBOR plus 3%, is applicable for delay in payment of tax.

For sales tax on services, different rates of penalties and default surcharge are applicable for late submission of returns and payment of tax respectively in different provincial jurisdictions.

Are any other declarations required?

In addition to the monthly sales tax return, an annual sales tax return and quarterly reconciliation statements in some of the cases are also required to be submitted.

Are penalties imposed in other circumstances?

Yes. A range of penalties are applicable for default of other legal requirements as well.

Can the VAT incurred by overseas businesses be claimed if they are not registered in Pakistan?

Not applicable.

What information must a VAT invoice show?

A GST invoice must show:

a unique serial number
seller’s name and address
seller’s GST registration number
date of issue of invoice
date of supply
customer’s name and address
a description and quantity of the goods or services supplied to the customer
value exclusive of sales tax
amount of sales tax
value inclusive of sales tax.

Are there any current or anticipated Standard Audit File for Tax (SAF-T) or similar electronic/digital filing requirements eg invoice listing data file/real-time VAT reporting?

Yes, all the sales tax returns files are uploaded online in the tax authorities portal and no manual submission is effective currently. Tax Authorities review these online submitted returns and issue notices for compliances. In some of the cases notices are also uploaded in this portal for necessary compliances.