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SALES TAX
PREFACE
Al-Hamd-O-Lillah, the 2nd addition of Short Notes on Sales Tax has been completed. These notes have been prepared under the senior guidance of my dearest teacher Mr. Imran Shehzad (ACA), who guided me through the way in the preparation of such quality notes for the students of Module-C. In these note, I covered almost all the material areas covering upto 20 to 30 marks in the paper including numerical calculations and fair presentations of the conceptual queries frequently asked by the ICAP-Examiner. I try to retain the focus of the ICAP-examiner in paper construction relative to the marks allocation as: Topics Sales Tax Numerical Conceptual queries Marks 10-15 10-20
I recommend to study these notes with reference to INCOME TAX & SALES TAX Khalid Petiwalas Notes.
I hope my efforts will help you to retain maximum marks in your examination. Utmost efforts have been made to make these notes free from errors, yet there is always a room for improvement. Any suggestion from you will highly be appreciated. Kashif Nawaz
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SALES TAX
SALES TAX
Gross Sales Tax @ 16 % Example :
Sr. No. Particular Value 50,000 50,000 GST (%) 16% 16% GST 8000 8000 Value Increase GST 58,000 58,000
1 2
Fans AC
100,000 NOTE : Tax on sale = Output Tax Tax on Purchase = Input Tax
16,000 116,000
Collect Paid
Point to Remember
Income Tax Sales Tax Direct Tax Indirect Tax Paid by other person
Note :
Except consumer every person pays two times tax. e.g. Mr. Kashif purchased goods from Mr. Rameez. Kashif paid input tax to Mr. Rameez. He also sold goods to Mr. Haseeb and collect output tax . which he paid into NBP. so, Input Tax paid
Output Tax paid
Kashif
Rameez
NBP
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SALES TAX
Example : Mr. Y purchased good worth Rs. 100,000 from Mr. Z. He paid input Tax Rs. 16000. He sold these goods to Mr. X for Rs. 120,000 and collect output tax Rs. 19200 . Calculation of Tax liability of Mr. Y
Purchase. Rs.100,000 Sale. Rs. 120,000
Requirement : I. Calculate amount to be paid and amount to be received . II. Calculate Tax liability of Mr. Y Solution: I. Calculation Of amount received and paid. Sale Price = 120,000 Tax ( 16% ) = 19200 Amount to be received 139,200
Purchase Price = 100,000 Tax ( 16% ) = 16000 Amount to be Paid 116,000 II.
SALES TAX Example : { sale by one person is the purchase of other person }
Assume Custom duty is included
Sale
12,000 15,000 20,000
NBP
1600 1920 480 800
3200
= 20,000 X 16%
= 3200
&
Inclusive of Sales tax = 23,200 X 0.16/1.16 = 3200
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SALES TAX
1. Sales Tax Liability = Output Tax input Tax 2. Tax Fraction Formula = Amount X 16 / 116 3. The Person must be a registered person 4. He has paid the Tax 5. The activities must be Taxable 6. Goods Must be taxable 7. Input tax can be claimed for last 6 tax periods 8. Input tax on fixed assets shall be claimed in 12 tax periods 9. He holds invoice of Tax 10. No input tax on the fake invoice 11. No input tax on vehicle ( otherwise as an inventory ) 12. Input Tax can be claimed on accrual basis
( must be paid with in 180 days ) 13. All payments > Rs. 50,000 must be through banking channel 14. No input Tax on exempt goods 15. Common Tax shall be allowed in proportion to sale 16. Input Tax is restricted upto 90% of output Tax 17. Tax also be payable on drawings , taken up by the employees 18. No input Tax , if Tax is not paid by the supplier . ( To whom you have paid the Tax )
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SALES TAX
Registered Person:
1. Compulsory Registration :
without any condition. o Importer o Distributor o Wholesaler b) For Manufacturer & Retailer :
Voluntarily:
If turnover of 12 months is less than (<) 5 million. Compulsory: If turnover of 12 months exceeds (>) 5 million.
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SALES TAX
2. Voluntary Registration :
If a person wants , he can be a registered person.
Note : A unregistered person cant claim or collect the tax. He cant issue the invoice. But he can pay the sales Tax.
Process of Registration :
If a person wants to be a person the he should follow the following procedure. Assume he lives in Lahore, Application for registration will be submitted to LRO ( local registration office) LRO will send this application to CRO ( central registration office ). They can directly inform the person about registration or rejection. Note. ( in Urdu ) aik person, aik waqt main aik say ziada jaga per register ho sakta hai. means As a wholesaler As a importer etc. usy for each category separately , sales tax number issue kiye ja sakty hain. aor aik single Sales tax number for all categories bhi issue kia ja sakta hai .
A person will be de-recognized on the following basis and he will be added in black list on the web. No tax submit Issue fake invoice Voluntarily .
Black listing:
SALES TAX
Taxable Activities:
e.g.
then it is not a taxable activity , because these are personal nature . Bought Tissue box for Sale For use in manufacturing process. its a taxable activity.
GOOGS
Taxable Goods Exempt Goods No Tax 16% Zero Rated ( 0% )
( Ref. book page # 604 )
An invoice must not be o Fake Invoice o Issued by a black listed Information given in Invoice ( Ref. book page # 599 ) o Name , address , and registration number of supplier and recipient o Date of issue o Description and quantity of goods o value exclusive of Tax o Amount of sales Tax
By: Kashif Nawaz Jakhar Page 9
SALES TAX
Fixed Assets :
The fixes asset must be used in the production of taxable goods.
Exempt Goods:
o o o o
Live animals Holy Quran and other holy books computer software Imported samples
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SALES TAX
CONCEPT
About goods purchased from unregistered suppliers are exclusively used for making Taxable supplies"
Example :
Supplies Taxable Zero rated Exempt
( Assumed Figures )
Amount
1000 500 1000
2500
2100
Adjustment : Purchases from unregistered person Rs.500 are equally contributed to supplies . Solution : We cant claim tax on these purchases. So we must deduct it from our sales. Supplies Taxable (1000-200) Zero rate (500-100) Exempt (1000-200) Amount
800 400 800
2000
2100
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SALES TAX
NOTE From sale only the Sale price of , purchases from unregistered person will be deduct. Question : Purchases from unregistered person of Rs.400 whose sale price is Rs.500. These goods were used in the Taxable supplies. Common input Tax is Rs.2100 Supplies Taxable Zero rated Exempt Amount
2000 300 200
Solution :
Apportionment of common input Tax Supplies Taxable Zero rate Exempt Amount
(2000-500) 1500 300 200
2000 Apportionment of Common input Tax. Taxable supplies = 1500 X 2100 = 525
2000
2100
Zero Rated
= 2000
Exempt Supplies =
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SALES TAX
Note
EXAMPLE :
Purchase price of goods from unregistered person is Rs.400 and these goods were used in the taxable supplies. Purchases from registered person is Rs. 200. Common input tax is Rs. 2100. Supplies Taxable Zero rated Exempt Amount
2000 300 200
Solution :
IF purchase price not given then the following procedure should be adopted. I. Calculate the gross profit ratio II. Apply the ratio on purchases (from unregistered person) and calculate the sale price of the purchases. NOTE
Formulas for calculating the gross profit ratio. S=C+SX%
OR
C=C+CX% where , S = Total sales of the Company C = Total cost ( purchases ) of the company In both steps same formula should be used . By: Kashif Nawaz Jakhar Page 13
HINT
SALES TAX
Step.1 : Calculation of margin on sale : S=C+SX% assume : % = x where: S = Total Supplies C = Total purchases 2500 = 600 + 2500x 2500x = 2500 600 2500x = 1900 x = 0.76% Step.2 : Calculation of the sale prices of the purchases (from unregistered person). S=C+SX% assume : S = x where: S = Sale price of purchases from unregistered person (required to calculate) C = Purchases from unregistered person
2100
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(xxxx) xxxx
if the 90% of output tax is less than the common input tax then the balance will be carry forward. e.g. common input tax = 1000 90% of output tax = 800 Balance c/f = 200 it would be the input tax of the next month Working : ( W-I ) Apportionment of common input tax. Supplies Taxable Zero Rated Exempt Rs.(000) xxx xxx xxx xxxx Common input Tax Rs.(000) xxx xxx ( refundable ) xxx ( not refundable ) xxxx
( W-I ) Common input Tax or Residual Tax. Net purchases from registered person X 16% = xxxx
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SALES TAX
Mr. X
Issue credit note (sales return)
Mr. Y
Issue Debit note ( purchase return )
Solution :
Mr. X
Output Tax = 100,000 less: credit note = (8000) 92000 Less: input Tax = (50000) Tax Payable = 42000
Mr. Y
Output Tax = 200,000 Input Tax Debit Note = (80000) = 8000 (72000)
Difference is tax payable
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SALES TAX
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SALES TAX
Exemptions provided to small manufacturer and small retailer
Manufacturer
Cottage industry Other than Cottage industry
Means unpaid sales Tax including; additional tax default surcharge fine penalty fee or any other sum under the sales tax laws at any particular day.
( Ref. book page # 597 )
2. Defaulter:
Person is a ;
Means a person who fails to pay the arrears. proprietor a partner in case of a firm a director in case of a company and also includes a guarantor or successor
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SALES TAX
3. Distributor:
Means a person appointed by a manufacturer, importer , or any other person for a specified area to purchase goods from him for further supply and includes a person who is also engaged in supply as a wholesaler or retailer.
4. Due Date:
In relation to the furnishing of a return means the 15th day of the month , following the , end of the tax period or such other date as the FBR may specify.
5. Goods:
Includes every movable property other than actionable claim , money, stocks and shares and securities .
6. Input Tax:
levied on :
supply of goods to the person Goods imported and cleared under the custom act. taxable services under the provincial ordinance
rendered to the person Federal excise duty in sales tax mode on goods or services to the person.
7. Manufacture or Produce:
Includes : o any process in which an article is converted into another distinct article o any process in which an article is so changed or reshaped that it becomes capable of being put to use differently o any process incidental to the completion of a manufactured product
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SALES TAX
8. Manufacturer or Producer:
Means a person who engages in the manufacture or production of goods whether or not the raw materials are owned by him.
Consideration in money which that supply or similar supply would generally fetch in an open market .
supply of goods by the person taxable services under the provincial ordinance
rendered by the person Federal excise duty in sales tax mode on goods or services by the person.
Means; The tax , additional tax, default surcharge, fine , penalty, fee , or any other sum under the sales tax laws.
12. Supply:
Means the sale or other transfer of the right to dispose off goods as owner, including such sale or transfer under a hire purchase agreement , and also includes : a. putting to private , business or non business use of goods manufactured in the course of taxable activity other than those of making a taxable supply.
By: Kashif Nawaz Jakhar Page 20
SALES TAX
owed by a person c. possession of taxable goods held immediately before a person ceases to be a registered person
means any economic activity whether or not for profit , and includes ; I. any activity in the form of business , trade or manufacture ; II. supply of goods or providing of services to another person; III. a one-off adventure or concern in the nature of a trade ; and IV. any thing done or undertaken during the commencement or termination of the economic activity
A supply of taxable goods by an; importer manufacturer wholesaler / dealer / distributor or retailer including zero rated supply but excluding exempt goods.
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SALES TAX
Value of taxable supplies is the consideration in money including all federal and provincial duties which the supplier receives in respect of the supply excluding the amount of sales tax.
SR. no.
1 2
Situation
Consideration is partly or fully in kind Sale is made on installment basis where the price includes markup on surcharge
Value of supply
Open market price excluding sales tax Open market price excluding sales tax. [ mark up or surcharge included in credit sales or sale on installment basis is not subject to sales tax ] Value as in the normal case or open market price excluding sales tax whichever is higher Value determined under the custom act including custom and excise duty levied thereon Value determined by the valuation committee comprising representative of trade and the sales tax department Open market price excluding sales tax Market price excluding sales tax Page 22
If there is a reason to believe that the value is under declared in the tax invoice Special nature of transaction and ascertainment of value is difficult Exempt goods supplied to a registered person for processing
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SALES TAX
Sales Tax rate is 16%. however , the Federal Government has power to fix a lower or higher rate on specified items. 22% on various items such as jelly, plastic waste, paper and aluminum 19.5% on various items such as certain steel items .
Goods falling under this category are chargeable to sales tax @ 0%. Examples of items under this category : o Supply to diplomats , diplomatic mission and privileged persons o supply of raw material o supply to exporters under duty and tax remission rules ( DTRE ) o Supplies against international tenders Some more examples are given at book page 606.
Certain imports and supply of goods falling under this category are outside the scope of sales tax and there for not subject to sales tax. Examples of items under this category :
o o o o o
Live animals Agriculture produce Holy Quran computer software imported samples
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SALES TAX
For the purpose of determining sales tax liability or for the purpose of establishing value of any taxable goods, an authorized officer can take minimum quantity of goods or raw materials against a proper receipt, a copy of which shall be kept in record by the registered person and the commissioner.
NOTE
Important definitions are giving in the book at page no.600
THE END
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