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Note: All the under stated questions have been solved under the Sales Tax Act effective

from July 1st 2015.


The following points are very important for students before solving the problems of sales tax.
Q.1 Briefly explain in which of the following cases a person is liable to be registered and also calculate tax payable on
turnover, if any:
Sr. No.
1
2
3

Particulars
Mr. Aslam is an importer; his taxable turnover during last 12 months is Rs. 5,000,001.
A wholesaler having taxable turnover during last 12 months Rs. 400,000.
A manufacturer having taxable turnover during last 12 months Rs. 4,000,000.

A manufacturer having taxable turnover during last 12 months Rs. 5,000,000.

5
6

A manufacturer having taxable turnover during last 12 months Rs. 5,000,001.


Mr. Amir is a manufacturer; his taxable turnover during last 12 months was Rs. 2,500,000 and his utility
bills during last 12 months was
a) Rs. 600,000
b) Rs. 800,000
c) Rs. 900,000
Mr. Zahid is a Retailer; his taxable turnover during last 12 months is less than Rs. 5 million.

8
9
10

Taxable turnover of Mr. Akram during last 12 months is Rs. 400,000, he is a distributor.
Mr. Usman is a Retailer; his taxable turnover during last 12 months is Rs. 15 million.
A person wants to import goods, whether he is required to get himself registered or not.

11
12

Cottage Industry
Mr. Bilal is a manufacturer; detail regarding his turnover during last 12 months is as follows:
Local sales 3,500,000
Exports (Zero rated supplies) 2,500,000
Mr. Kamran is a manufacturer, information regarding last 12 months is given below:
Exports (Zero rated supplies) 3,000,000
Electricity bills 850,000

13

14

Mr. Ehsan is a Commercial exporter and wants to claim refund.

Solution of Q.1:
Important note: This solution for requirement of registration has been made under section 14 of the Sales Tax Act,
1990.
Sr. No.
1
2
3

Particulars
An importer is required to be registered irrespective of its turnover.
Sales tax payable (5,000,001 x 17%)
= 850,000
A wholesaler is required to be registered irrespective of its turnover.
Sales tax payable (400,000 x 17%) =
68,000
In this case manufacturer is not liable to be registered as his taxable turnover is less than Rs. 5,000,000.
(It is assumed that his utility bills during last 12 months do not exceed Rs. 800,000, otherwise he shall be
liable to be registered.)
In this case manufacturer is not liable to be registered as his taxable supplies do not exceed Rs.
5,000,000. (It is assumed that his utility bills during last 12 months do not exceed Rs. 800,000, otherwise
he shall be liable to be registered.)

5
6

In this case manufacturer is liable to be registered as his taxable turnover is more than Rs.5,000,000.
Sales tax payable (5,000,001 x 17%) = 850,000
A In this case manufacturer is not required to be registered as he falls in the definition of cottage
industry. (cottage industry is not liable to be registered)
(Cottage industry means a manufacturer whose annual taxable turnover during the last 12 months
ending any tax period does not exceed Rs.5 million or whose annual utility (electricity, gas and
telephone) bills during the last 12 months ending any tax period do not exceed Rs.800,000.
B In this case manufacturer is not required to be registered as he falls in the definition of cottage
industry i.e. his utility bills do not exceed Rs.800,000. (cottage industry is not liable to be registered)
(Cottage industry means a manufacturer whose annual taxable turnover during the last 12 months
ending any tax period does not exceed Rs.5 million or whose annual utility (electricity, gas and
telephone) bills during the last 12 months ending any tax period do not exceed Rs.800,000.

7
8
9
10
11
12

13

14
Q.2:

C In this case manufacturer is required to be registered as his utility bills exceed Rs. 800,000.
Sales tax payable (2,500,000 x 17%)
425,000
Mr. Zahid is a retailer (other than dealing only in exempt supplies) hence liable to be registered as there is
limit on taxable supplies.
A distributor is required to be registered irrespective of its turnover.
Sales tax payable (400,000 x 17%) =
68,000
A retailer (other than exempt supplies) is liable to be registered as there is limit on taxable supplies.
Sales tax shall be payable under normal procedure u/s 3 of the Sales Tax Act, 1990.
An importer is required to be registered irrespective of its turnover.
Cottage industry is not required to be registered.
Total taxable supplies (including zero rated supplies) of the manufacturer is 6,000,000, so he is liable to
be registered.
Sales tax payable (3,500,000 x 17%) = 595,000
Mr. Kamran is required to be registered as he is a manufacturer and his utility bills during last 12 months
are more than Rs. 800,000.
However he is not required to pay any sales tax as his sales are zero rated.
A commercial exporter is not required to be registered, however if he wants to claim refund of input tax
then he must get himself registered.

Compute sale tax liability of Mr. Aslam (registered manufacturer) for the month of July 2015 from following
information.
Rs.
Sales to registered persons

650,000

Purchases from registered persons

300,000

Purchases from non-registered persons

100,000

Solution:
Output tax:
On sales to registered persons U/S 3
Less: Input tax

(Rs. 650,000 x 17%)

On purchases from registered person

110,500

(300,000 x 17%)

51,000
-

On purchases from non-registered persons (Note-1)


Total input tax

51,000

Limitation on input tax upto 90% of output tax u/s 8B of the


Sales the Sales Tax Act, 1990

(Rs. 110,500 x 90%)

Input tax is fully admissible as it is less than 90% of output tax.

99,450
______

Sales tax payable


59,500
(Note 1) As purchases from non-registered persons are without sales tax invoices hence the same shall be
without sales tax u/s 23(2) of the Sales Tax Act, 1990, therefore the question of adjustment of input tax in not
applicable.
Q.3

Explain section 8B of the Sales Tax Act, 1990.

Solution:

A registered person shall not be allowed to adjust input tax in excess of 90% of the output tax for that tax period:
Tax charged on the acquisition of fixed assets shall be fully adjustable against the output tax in the month of
acquisition.
The Board may exclude any person or class of persons from this section.
A registered person may be allowed adjustment or refund of input tax on fulfilment of the following conditions, in
case:
(i) whose accounts are subject to audit under the Companies Ordinance, 1984, upon furnishing a statement along
with annual audited accounts, duly certified by the auditors, showing value additions less than the limit prescribed
above; or
(ii) other registered persons, as notified by the Board.
The adjustment or refund of input tax if any to a registered person shall be made on yearly basis in the second
month following the end of the financial year.
The Board may notify any other limit of input tax adjustment for any person or class of persons.
Any auditor found guilty of misconduct in furnishing the certificate shall be referred to the Council for disciplinary
action.
Q.4:

Following information has been provided by Mr. Zohaib registered as commercial importer for the month of August
2015.
Rs.
Invoice price of imported goods
Value for custom duty
Custom duty
FED (Federal Excise Duty)

500,000
550,000
50,000
30,000

Compute sales tax payable under following two situations


a)
b)

If taxable supplies
If taxable supplies

800,000
700,000

Solution (a):
Output tax:
On taxable supplies U/S 3 (Rs. 800,000 x 17%)

136,000

Less Input tax:


On commercial imports U/S 3
(Rs. 630,000 x 17%)
(Note 2)
Additional tax paid on commercial imports U/R 58B(1)
(Rs. 630,000 x 3%)

107,100
18,900
126,000

Balance sales tax payable


Notes:

10,000

1.

Restriction of 90% of output tax is not applicable in case of commercial importer under SRO 647(I)/2007 dated
June 27, 2007.

2.

Import value u/s 2(46)(iii)(d) for the purposes of sales tax is as under:
Rs.

Value for custom duty

550,000

Add: Custom duty

50,000

Add: Federal Excise duty

30,000
630,000

Solution (b):

Output tax:
On taxable supplies

(Rs. 700,000 x 17%)

119,000

Less input tax:


On commercial imports U/S 3

(630,000 x 17%) (Note 2)

107,100

Additional tax paid on commercial imports U/R 58B(1) (Rs. 630,000 x 3%)

18,900
126,000

Balance sales tax excess paid

(Read with note 3)

(7,000)

Notes:
1. Restriction of 90% of output tax is not applicable in case of commercial importer under SRO 647(I)/2007 dated
June 27, 2007.
2. Import value u/s 2(46)(iii)(d) for the purposes of sales tax is as under:
Rs.
Value for custom duty

550,000

Add: Custom duty

50,000

Add: Federal Excise duty

30,000
630,000

3. It is important to note that if commercial imports stock is totally sold then there should be no refund as it is
minimum value addition case however if imported stock is not fully sold then there may be excess payment as
per return however there will be no refund in minimum tax case. Further if the value addition is in excess of the
minimum value addition then the taxpayer has to pay the sales tax on the value addition in excess of total sales
tax paid at import stage U/R 58C of Sales Tax Special Procedure Rules, 2007.
Q.5:

Mr. Mohsin is a registered manufacturer of goods falling under third schedule. Information about his sales and
purchases for the month of August 2015 is as follows:
Sales (after 10% discount)

45,000

Taxable purchases

30,000

Required: Calculate sale tax payable by Mr. Mohsin.


Solution:
Goods falling under 3rd schedule are chargeable to tax @ 17% at retail price. If discount is allowed on these goods
then sales tax shall be calculated on the retail price and not on the discounted price.
Output tax:
Tax on sales (45,000 x 100/90 x 17%)

8,500

Input tax:

Q.6:

Tax on purchases (30,000 x 17%)

5,100

Full input tax is allowed as it is less than 90% of output tax of Rs. 7,650.

____

Balance sales tax payable

3,400

Calculate output tax on following supplies

Sr. #
1

Taxable supplies Rs. 232,000 inclusive of sales tax

Local taxable supplies Rs. 116,000 without sales tax

Solution:
(Note 1) When value of sales are given including sales tax, then value of sales tax shall be calculated by using tax
fraction formula U/S 2(36) i.e. Sales tax = value including sales tax x 17 / 117. [Rs. 232,000 x 17/117 = 33,709]
(Note 2) Output tax on local taxable supplies without sales tax [Rs. 116,000 x 17% = 19,720]
Q.7 Mr. Kamran is a registered manufacturer under the Sales tax Act, 1990. Data regarding his business for the month
of July 2015 is as follows:

Sr. #

Rs.

1
2
3
4
5
6
7

Taxable supplies to registered persons

500,000

Taxable supplies to non-registered persons (including the amount of Sales Tax)

250,000

Exempted sales

300,000

(made from exempt purchases only)

Taxable purchases from registered persons


Purchases

130,000

(for exempt supplies only)

50,000

Sales tax paid on factory electricity bills (Sales tax registration number is printed on bills)
Sales tax paid on factory telephone bills (Sales tax registration number is printed on bills)

Required: Calculate sales tax payable.


Solution:
Output tax
On taxable supplies to registered persons U/S 3

(Rs. 500,000 x 17%)

On taxable supplies to non-registered persons U/S 3 (Rs. 250,000 x 17/117)

Input tax
On taxable purchases used only for taxable local supplies

(Note - 1)

On factory electricity bills

(Note - 4)

On factory telephone bills

(Note - 4)

Actual admissible input tax

(A)

90% of output tax (Rs. 121,325 x 90%)

(B)

Less Admissible input tax: Lower of (A) or (B)


Sales tax payable

(Note - 1)
Input tax on purchases from registered persons (130,000 x 17%)
Total input tax for apportionment
Local supplies to non-registered persons (250,000 x 100/117)
Total local supplies
Supplies related to DTRE and zero rated

(Note - 3)

5,600
500

Rs.
85,000
(Note - 2)

36,325

121,325

22,100
5.600
500

28,200
109,193
28,200

93,125

22,100
22,100

(Note - 4) The question has been solved on the assumption that sales tax used on factory electricity and telephone bills has
been used only for taxable supplies (other than zero rated supplies) hence no apportionment of the same has not been
made.
(Note - 6) The question has been solved on the assumption that exempt supplies have been made only from exempt
purchases and without use of any sales tax of other inputs, hence the same has been fully accounted for in the input tax
without any apportionment.