PRESENTATION ON SALES TAX

WITHHOLDING WITH REFERENCE TO

THE TEXTILE SECTOR

LARGE TAX PAYERS UNIT, LAHORE

07-11-2013
Ahmad Kamal
Additional Commissioner
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SCHEME OF PRESENTATION
History of zero rated / reduced rate regime for export

oriented sectors including the textile sector

Sectors covered under the zero rated / reduced rate
regime
Salient features of SRO 1125(I)/2011 dated 31-12-2011
with reference to textile sector as amended to date
Concept of Withholding Sales Tax
Section 3 (7) of the Sales Tax Act, 1990
Sales Tax Withholding Rules, 2007 notified vide SRO
660(I)/2007 dated 30-06-2007 as amended to date
Cumulative impact of SRO 1125(I)/2011 and SRO
660(I)/2007
2

History of zero rated / reduced rate regime

for export oriented sectors including the
textile sector
SRO 621(I)/2005 dated 17-06-2005
SRO 509(I)/2007 dated 09-06-2007
SRO 283(I)/2011 dated 01-04-2011
SRO 1058(I)/2011 dated 23-11-2011
SRO 1125(I)/2011 dated 31-12-2011

Sectors covered under the zero rated / reduced rate regime

Leathers and articles thereof

Textile and articles thereof
Carpets
Sports goods
Surgical goods
It is important to note here that the benefit of

reduced rate of sales tax is subject to fulfillment of

certain conditions and the rate of tax also varies
with the stage of supply and the goods supplied
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Salient features of SRO 1125(I)/2011 with reference to

textile sector as amended to date
SRO 1125(I)/2011 dated 31-12-2011 came into

operation on 01-12-2012
It was amended a number of times since its
inception with the major amendments coming
through SRO 154(I)/ 2013 dated 28-02-2013, SRO
504(I)/2013 dated 12-06-2013, SRO 682(I)/ 2013
dated 26-07-2013 and SRO 898(I)/ 2013 dated 0410-2013
The SRO as amended to date has two tables
consisting of various goods belonging to the five
export oriented sectors as well as raw materials,
chemicals, components, subcomponents etc. used
in these export oriented sectors
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Salient features of SRO 1125(I)/2011

Major components of Table 1
Leathers and articles thereof, excluding finished articles of

leather and artificial leather

Textile and articles thereof, excluding finished articles of
textiles and textile made-ups; mono-filament of more than
67 decitex, sun shading, fishing net of nylon or other
material, rope of polyethylene or nylon and tyre cord fabric
Carpets, excluding those in finished condition
Sports goods, excluding those in finished condition
Surgical goods, excluding those in finished condition
Raw materials, chemicals, components, subcomponents
etc. used in afore referred export oriented sectors
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Salient features of SRO 1125(I)/2011

Components of Table 2
Finished articles of leather and artificial leather
Finished articles of textiles and textile made-ups

excluding used and worn clothing

As regards the textile sector various rates of sales tax

have been provided

2% of the value of supply regarding items mentioned in

Table 1
5% of the value of supply regarding items mentioned in
Table 2
3% of the value of supply regarding fabrics
17% of the value of supply in case supplies are made
outside the reduced rate sectors
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Salient features of SRO 1125(I)/2011

The benefit of SRO 1125(I)/2011 pertaining to textile sector

is available to persons doing business in textiles who are

registered as manufacturers, importers, exporters and
wholesalers registered under the Sales Tax Act, 1990 and
are on Active Taxpayer List of Federal Board of Revenues
website
For the textile sector the notification applies from spinning
stage onwards
Sales tax is chargeable @2% on import of goods usable as
industrial inputs by registered manufacturers
Sales tax is chargeable @2% plus 2% value addition on
import of goods usable as industrial inputs by commercial
importers, on which tax shall be charged @2% within the
five sectors and@ 17% outside these sectors
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Salient features of SRO 1125(I)/2011

Sales tax @5% along with value addition @2% is to be

charged on import of finished goods ready for use by

the general public
Supplies of industrial inputs within five sectors is
chargeable to sales tax @2% whereas supplies outside
these five sectors is chargeable to sales tax @17%
Supply of finished products to retailers is chargeable to
sales tax @5%
Registered retailers shall pay sales tax @5% on their
retail sales
Registered manufacturers involved in processing of
goods are required to charge sales tax @2% of the
processing charges received
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Salient features of SRO 1125(I)/2011

Goods mentioned at Table 1 if supplied to manufacturers

for manufacturing goods mentioned at Table 1 or 2 shall

be charged tax @2% even outside the five sectors
Import and supply of fabrics shall be charged sales tax
@3% and value addition @2% shall be applicable in case
of commercial import of fabrics
Registered persons are entitled to input tax adjustment on
consumption of tax paid inputs, however refund against
local supplies is admissible only subject to pre- refund
audit and is also required to be scrutinized through post
refund audit to be conducted within ninety days.
Registered manufacturers are entitled to input tax
adjustment on machinery, parts, spares and lubricants
Registered manufacturers and exporters of five sectors
are entitled to zero rated supply of gas and electricity

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Concept of Withholding sales tax

As a general rule the liability to pay sales tax is as

follows:
In the case of local supply of goods, of the person making

the supply, and

In the case of goods imported into Pakistan, of the person
importing the goods.

In case of withholding sales tax the liability to pay sales

tax is partly shifted to the withholding agent making

purchases in cases where supplies are made by
registered person and it is completely shifted to the
withholding agent where supplies are made by an
unregistered person to government departments,
autonomous bodies or public sector organizations
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Section 3(7) of the Sales Tax Act, 1990

The Federal Government may, by notification in the

official Gazette, specify any person or class of

persons as withholding agent for the purpose of
deduction and deposit of tax at the specified rate in
such manner and subject to such conditions or
restrictions

as

the

Federal

Government

may

prescribe in this behalf.

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Salient features of Sales Tax Withholding Rules, 2007 as amended to date

The Sales Tax Withholding Rules, 2007 were promulgated by

the federal government vide SRO 660(I)/2007 dated 30-062007 in exercise of powers under Section 3(7) of the Sales Tax
Act, 1990
Major amendments were introduced to these rules vide SRO
98(I)/2013 dated 14-02-2013, SRO 505(I)/2013 dated 12-062013 and SRO 897(I)/2013 dated 4-10-2013
These rules came into force on 01-07-2007
These rules apply to all taxable goods and services barring few
exceptions that are purchased by the withholding agents
The definition of withholding agent includes Federal and
provincial government departments, autonomous bodies,
public sector organizations, registered companies, registered
recipients of services of advertisement and registered
exporters

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Salient features of Sales Tax Withholding

Rules, 2007
Cont. 2
As per the rules, a withholding agent shall deduct an amount

equal to one fifth of the total sales tax shown in the sales tax
invoice issued by the registered supplier and make payment of
the balance amount to him. In case of supplies made by a
registered wholesaler, dealer or distributor the amount
deducted would be one tenth.
The withholding agent is required to indicate through notice or
advertisement that withholding sales tax shall be deducted by
him on purchases of taxable goods
The sales tax so deducted shall be deposited by the
withholding agent in the designated branch of National Bank
of Pakistan on sales tax return-cum-payment challan, by 15 th
of the month following the month during which payment has
been made to the supplier
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Salient features of Sales Tax Withholding Rules,

2007
Contd. 3
A withholding agent having a FTN, Federal and

provincial government departments, autonomous bodies

and public sector organizations are required to deduct
entire amount of sales tax from the payment due at the
applicable rates on purchases made from unregistered
persons
A registered company or exporter shall deduct sales tax
equal to one percent of the value of supply on
purchases made from unregistered persons. No input is
allowed on such deduction
A sales tax registered recipient of services of
advertisement is required to deduct entire amount of
sales tax from the payment due to the service provider
at the applicable rates on services obtained

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Salient features of Sales Tax Withholding

Rules, 2007
Contd. 4
The registered supplier is required to issue sales tax invoice

as stipulated in section 23 of the Sales Tax Act, 1990, in

respect of every taxable supply made to a withholding agent.
The registered supplier is required to file monthly return as
prescribed in the Sales Tax Rules, 2006, and can adjust total
input tax against output tax under sections 7, 8 and 8B of the
Sales Tax Act,1990, taking due credit of the sales tax
deducted by the withholding agent
The Commissioner is required to keep a list of all withholding
agents falling in his jurisdiction and monitor payment of tax
deducted by withholding agents falling in his jurisdiction and
shall also ensure that the return prescribed under these
rules is filed.
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Salient features of Sales Tax Withholding Rules, 2007

Contd. 5

The Commissioner is required to keep a list of all

withholding agents in his jurisdiction and to monitor payment

of sales tax by withholding agents. He is required to ensure
that the return received from the bank is duly fed in the
computerized system and also to periodically ensure that
the suppliers mentioned in the return filed by the withholding
agents, falling under his jurisdiction, are filing returns under
section 26 of the Sales Tax Act, 1990, declaring the supplies
made to withholding agents.
The provisions of these rules do not apply to supply of
following goods and services if made by registered persons:
(i) Electrical energy
(ii) Natural gas

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Salient features of Sales Tax Withholding Rules,

2007
Contd. 6
Petroleum products as supplied by production companies,

oil refineries and oil marketing companies

Mild steel products
Products made from sheets of iron, steel etc.
Paper in rolls or sheets
Plastic products including pipes
Vegetable ghee and cooking oil
Telecommunication services
Goods specified in Third schedule of the Sales Tax Act,
1990
Supplies made by commercial importers who paid value
addition tax at the time of import
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Reasons for these amending SRO

660(I)/ 2007
The federal government introduced these amendments as a

revenue measure
The scope of sales tax withholding has been increased
manifold, by introduction of companies and exporters as
withholding agents
These measures have been introduced in order to discourage
undocumented sector and to bring more persons carrying out
taxable activity into the tax net through sales tax registration
but this effect has been nullified due to latest amendment
introduced through SRO 897(I)/2013 dated 4-10-2013
Failure on part of the department to bring various
undocumented sectors / segments into the sales tax net is
reflected by expansion of the with holding regime
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Cumulative impact of SRO 1125(I)/2011 and SRO

660(I)/2007 on textile sector

Textile sector is not amongst the sectors outside the

purview of withholding regime of sales tax therefore

sales tax at varying rates has to be with held by the
withholding agents in case of purchases pertaining
to textile sector
A withholding agent shall deduct an amount equal
to one fifth of the total sales tax shown in the sales
tax invoice issued by the registered supplier of
textiles and make payment of the balance amount to
him. In case of supplies made by a registered
wholesaler, dealer or distributor the amount
deducted would be one tenth of the total sales tax.
20

Cumulative impact of SRO 1125(I)/2011 and SRO

660(I)/2007
A withholding agent having a FTN, Federal and
provincial government departments, autonomous
bodies and public sector organizations are required to
deduct entire amount of sales tax from the payment
due at the applicable rates on purchases made from
unregistered persons who supply textile goods
A registered company or exporter shall deduct sales
tax equal to one percent of the value of supply on
purchases made from unregistered persons. No input
is allowed on such deduction
The applicable rate of sales tax would vary keeping in
view the description of goods, the stage of supply and
the sector in which or to which the supply takes place
as per Table1, Table 2 or conditions of SRO
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THANK YOU

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