Introduction

Withholding sales tax under Sales Tax Act 1990 is deducted in accordance with the provisions of Section 3(7) of Sales Tax Act 1990, read as given below:

“The tax shall be withheld  at the rate as specified in the Eleventh Schedule, by any person or class of persons being purchaser of goods or services, other than the services liable to pay sales tax under a Provincial enactment, as withholding agent for the purpose of depositing the same, in such manner and subject to such conditions or restrictions as the Board may prescribe in this behalf through a notification in the official Gazette.”

In accordance with the provisions of the Sales Tax Act 1990, sales tax is paid by the purchaser/consumer of goods or services. This is an indirect tax. The sales tax at the specified rate is added in the sales invoice by the supplier separately in addition to price excluding sales tax.

This sales tax is collected by the supplier from purchaser along with price and is deposited in the government exchequer after adjusting sales tax (input tax) paid by the supplier on his purchases.

However, in certain cases as prescribed in the Eleventh Schedule of the Sales Tax 1990, sales tax is withheld by the purchaser at the prescribed rate from total sales tax as mentioned in sales invoice.

The sales tax is deposited in government exchequer by the purchaser on behalf of supplier. The withholding sales tax has been introduced to discourage evasion of sales tax by the supplier by suppressing their sales. Moreover, unregistered suppliers cannot deposit sales tax in the government  exchequer as they are not bound to file a sales tax return under Sales Tax Act 1990.

Withholding Sales Tax Procedure

Withholding sales tax is deducted and paid in accordance with the provisions of Sales Tax Special Procedure (Withholding) Rules 2007.

Withholding Sales Tax Agent

As prescribed under sub-rule 2 of Sales Tax Special Procedure (Withholding) Rules 2007, goods and services supplied to the following persons, hereby termed as withholding agent, are subject to withholding of sales tax:

• federal and provincial government departments;
• autonomous bodies;
• public sector organizations;
• companies as defined in the Income Tax Ordinance, 2001,
  which is registered for sales tax, federal excise duty or income tax;
• recipients of service of advertisement, who are registered for sales tax;
•  persons registered as exporters

Deduction of Withholding Sales Tax

• A withholding agent, other than  a recipient of advertisement services, shall deduct an amount equal to one fifth of the total sales tax shown in the sales tax invoice issued by a registered person and make payment of the balance amount to him.
• A withholding agent shall deduct an amount equal to one-tenth of the total sales tax shown on the sales tax invoice issued by persons registered as a wholesaler, dealer or distributor, and make the payment of the balance amount to him
• The Federal and Provincial government departments, autonomous bodies, and public sector organizations, having Free Tax Number (FTN) and falling  shall, on purchase of taxable goods form unregistered persons liable to be registered under  the Sales Tax Rules, 2006, deduct sales tax at the at the  applicable rate of the gross value of taxable supplies made to him from the payment due to the supplier.
• A withholding agent, other than specified in clause (i), shall on purchase of taxable goods form persons liable to be registered but not actually registered under Chapter I of the Sales Tax Rules, 2006, deduct sales tax at the rate of one percent of the gross value of taxable supplies made to him from the payment due to the supplier and the withholding agent shall not be entitled to reclaim or deduct the amount of tax withheld from such persons as input tax.
• A person receiving advertisement services,  shall deduct the amount of sales tax as mentioned in the invoice issued by the service provider
  from the payment due to the service provider. In case the sales tax amount is not indicated on the invoice, the recipient shall deduct sales tax at the applicable rate of the value of taxable services from the payment due to the service provider.

Withholding Sales Tax Payment

Government Departments

Where the purchases are made by the government departments, the Drawing and Disbursement Officer (DDO) preparing the bill for the accounting office shall indicate the amount of sales tax withheld. The The accounting office shall adopt the procedure as indicated below:

Federal Government

The office of the Accountant General of Pakistan Revenue shall account for the amount deducted at source during a month under the Head of Account “B02341-Sales Tax” and send an intimation to the Chief Commissioner, Regional Tax Office,Islamabad], by the 15th of the following month.

Provincial and District Governments

The Accountant General of the province or the District Accounts Officer, as the case may be, shall credit the amount deducted at source during a month to the head of account “GI2777-Sales Tax Deductions at Source under Sales Tax Special Procedure (Withholding) Rules, 2007”. The concerned Accounts Office shall send a cheque for the amount  in the name of concerned Commissioner Inland Revenue by the 15th of the following month and by debit to the aforesaid head of account.

Military Accountant General (MAG)

The MAG shall account for the amount deducted at source during a month under the Head of Account “B0234lSales Tax” and send intimation to the Chief Commissioner, Regional Tax Office, Rawalpindi, by the 15th of the following month. The amount so deducted at source shall be reported by MAG office to AGPR through civil exchange accounts

Filing of Withholding Sales Tax Return

The DDO of the government department concerned, shall prepare the return in the
form as in the Annexure to these rules for each month and forward the same to
the Commissioner Inland Revenue having jurisdiction by the 15th of the following month.

Other Entities

• In case of purchases, other than government departments, the sales tax deducted at source shall be deposited by the withholding agent in the designated branch of National Bank of Pakistan under on sales tax return cum-payment challan in the form set out at Annexure to these rules, by 15th of the month following the month during which the purchase has been made.
• In case the withholding agent is also registered under the Sales Tax Act, 1990, or
  the Federal Excise Act, 2005, he shall  deposit the withheld amount of sales tax
  along with return filed for the month in which the purchase was made , along with other tax liability and such person shall not be required to file the return in the term as set out in the Annexure to these rules.
• In case the withholding agent is not registered for sales tax or federal
  excise duty but holds a national tax number assigned under the Income Tax Ordinance, 2001, he shall file the return, as set out in the Annexure to these rules, electronically and deposit the amount deducted at source in the manner as provided for persons filing returns electronically under rule 18 of the Sales Tax Rules, 2006.

Withholding Certificate

A certificate showing deduction of sales tax shall be issued to the supplier by the withholding agent duly specifying the name and registration number of supplier, description of goods and the amount of sales tax deducted.

Exemptions

Withholding of sales tax is not applicable to the supply of following goods and services by a registered person:

• electrical energy;
•  natural gas;
• petroleum products
•  registered persons paying sales tax under Chapter XI of the Sales Tax Special
  Procedure Rules, 2007, except those paying sales tax on ad valorem basis at
  standard rate];
• vegetable ghee and cooking oil; 
•  telecommunication services; 
• goods specified in the Third Schedule to the Sales Tax Act, 1990; and
• supplies made by commercial importers who paid value addition tax on such goods at the time of import as prescribed under Chapter X of the Sales Tax Special Procedure Rules, 2007.

Conclusion

Withholding sales tax is a mechanism to check the evasion of sales tax by suppliers, particularly unregistered suppliers. Otherwise, the payment of sales tax is responsibility of the supplier.

FAQs

Q. Who’s required to withhold sales tax?

Ans. Persons (buyers) as prescribed in the Eleventh Schedule of the Sales Tax Act 1990, are responsible to withhold sales tax.

Q.  Is withholding tax charged on sales?

Ans. Sales tax is withheld on sales as described in the Sales Tax Special Procedure (Withholding) Rules, 2007.

Q.  Who pays withholding tax buyer or seller?

Ans. The buyer withholds sales tax and pay to the Tax Authority on behalf of the seller.

Q. What is sales tax in Pakistan?

Ans. Sales tax in Pakistan is an indirect tax which is charged by the supplier and paid by the consumer under the Sales Tax Act, 1990.

Q. Is GST a withholding tax?

Ans. The General Sales Tax (GST) is an indirect tax. The GST is withheld in certain cases as prescribed in the Eleventh Schedule of the Sales Tax Act 1990 and

Sales Tax Special Procedure (Withholding) Rules, 2007.