Sales Tax Registration in Pakistan: Federal and Provincial Considerations

Your sales tax registration obligations in Pakistan depend on what you supply and where. Goods fall under the Sales Tax Act 1990 and are administered federally by the FBR. Most services are taxed by the provinces, each under its own law and through its own revenue authority.

Plenty of businesses sell goods and services together, or work in more than one province. They may well need several registrations.

Registering late, or with the wrong authority, can bring assessments for past periods with default surcharge and penalties, and may cost you input tax you would otherwise have claimed. Sorting the position out at the start is much easier than repairing it.

Under the constitutional division of taxing powers, the federal government taxes sales of goods and each province taxes services rendered within it. For a business, that means separate laws, separate portals and separate returns.

• Goods: Federal Board of Revenue, under the Sales Tax Act 1990.
• Services in Sindh: Sindh Revenue Board.
• Services in Punjab: Punjab Revenue Authority.
• Services in Khyber Pakhtunkhwa: Khyber Pakhtunkhwa Revenue Authority.
• Services in Balochistan: Balochistan Revenue Authority.
• Services in Islamabad: the FBR, under the Islamabad Capital Territory (Tax on Services) Ordinance 2001.

Every provincial law has its own schedule of taxable services, its own definitions and its own procedures. The same service can therefore be treated differently from one province to the next. Rates, exemptions and reduced-rate regimes differ too, and provincial finance laws revise them.

Each statute and its rules set their own registration requirements, so ask the question separately under every law that might apply. Broadly, registration is required for:

• Manufacturers, importers, exporters and certain wholesalers and retailers making taxable supplies of goods, subject to the applicable conditions and thresholds.
• Anyone providing a service listed as taxable in a provincial or Islamabad schedule.
• Businesses brought in by specific notifications or sector-based rules.
• Persons who opt for voluntary registration where the law allows it.

Finance Acts, provincial finance laws and SROs move the boundaries regularly. Look at your position again whenever your activities change or the law does.

Your customers have a stake in this too. Large companies and government bodies often will not sign a contract or release payment until a supplier is registered, and they may withhold tax from payments to unregistered persons.

Federal registration is done on IRIS and produces a Sales Tax Registration Number (STRN) tied to the business's NTN. Each provincial authority has its own online system. Because the information asked for overlaps heavily, one consistent document pack saves time when several registrations are needed.

• NTN and incorporation or partnership documents, as relevant.
• CNICs of the owners, partners or directors.
• Proof of business premises, such as a tenancy agreement or title documents.
• Details of a bank account in the business's name.
• A description of the business activities and utility connections, plus machinery details for manufacturers.
• Biometric verification of the applicant where required.

Registration brings a recurring cycle of work under every law you are registered with. Skip a return, even for a month with no taxable activity, and penalties can follow along with a risk to your active status. The core duties usually are:

1. Issue tax invoices carrying the particulars the law requires.
2. Keep records of sales, purchases and input tax claims.
3. File periodic returns and pay tax within the prescribed time.
4. Meet withholding obligations where they apply.
5. Connect to point-of-sale or electronic invoicing systems if the business falls within those requirements.
6. Report changes in business details through the relevant portal.

Input tax can only be adjusted if certain conditions are met, one being that the supplier is properly registered and compliant. Checking your suppliers' status protects your claim.

Closing a business does not close its registration. If activities stop or change, update or cancel the registration through the proper procedure. A dormant registration keeps generating filing obligations, and the notices for missed returns keep coming.

If you provide services in more than one province, you may need to register with more than one authority and work out where each service is taxable. The rules on place of provision, branch registration and remotely delivered services are not uniform. Technology, consultancy and logistics firms feel this most, because they often serve customers in several provinces from one office.

• Map each revenue stream against the relevant provincial schedules.
• Identify which office or branch actually renders each service.
• Apply the relevant rules, and any arrangements between authorities, to avoid paying tax twice on the same service.
• Keep records that justify how revenue is split between provinces.

Mixed businesses need the most care. A manufacturer that also installs or maintains its products may find the goods taxed federally and the service taxed by a province. Contracts and invoices should separate the two so that each is taxed correctly and input tax can be claimed where the law allows.

Sutra Law advises businesses across Pakistan on federal and provincial sales tax. We can work out where you need to register, complete registrations with the FBR and the provincial authorities, review existing compliance for gaps and represent you in audits, show cause proceedings and other sales tax matters.

A useful first conversation needs a list of what you sell, where your customers and offices are, and copies of any registrations you already hold. If you have been trading for a while without registering, or a customer is holding payment until you do, raise it straight away so the position for past periods can be assessed.