Sales Tax Instructions

Sales Tax Instructions, 2009
3. In the budget 1998-99, the scope of sales tax was expanded and ―supplies
made in Pakistan by retailers whose annual turnover from supplies, whether taxable or
otherwise, made in any tax period during the last twelve months ending any tax period‖
exceeding Rs.5 million was made liable to sales tax in terms of Sl. No. 42(b) of the Sixth
Schedule to the Sales Tax Act, 1990 read with sections 3AA and 14(1)(ii) thereof.
4. The business of alcoholic liquors in Pakistan is also regulated by the
provincial Excise & Taxation Department. In the province of Sindh, the E&T Department
license ―Wine Shops‖ which sell alcoholic liquors in retail. However, in Punjab, the E&T
Department issues license to Hotels & Restaurants under the Punjab Liquors License
Rules, 1932 (Notification No.5556-E&S dated 21.10.1932 issued under section 59 of the
Punjab Excise Act, 1914) for the retail vending of alcoholic liquors of the Permit Holders
(adult, non-Muslims). The premises for storage and retail vending in Hotels &
Restaurants are called ―permit Rooms‖ and are duly authorized by the Punjab E&T
Department under rule 5 of the Punjab Excise Manual. The foreigner guests or the Hotel
and local non-Muslims (permit holders) can purchase their quota of alcoholic liquors
from such Permit Room and can consume the same in their hotel room and private
resident, respectively. Almost 99% of the alcoholic liquors is sold by these permit rooms
to the local non-Muslim permit holders. Even to foreigner guests of the hotels, alcoholic
liquors are not served in their hotel rooms but they can purchase the packed liquor for
self-consumption in their hotel rooms. The Hotel/Restaurant, however, pay central excise
duty on sale of such alcoholic liquors on the margin i.e. difference between the cost and
sale price fixed by the Provincial E&T Department in terms of the Honourable Supreme
Court of Pakistan judgment C. A. No.101-K, 107-K etc. (1993 SCMR 1342).
5. Now that sales tax has been extended to the retail stage from 01.07.1998,
the ―Wine Shops‖ in Sindh have been registered under the Sales Tax Act, 1990, if their
annual turnover exceeded Rs.5 million and they are charging and paying sales tax on
their retail sales of alcoholic liquors. However, in Punjab, the hotels & restaurants,
owners have contested this levy on the ground that they provide ―services‖ and there is
no sales tax on ―services‖ and also on the ground that in case sales tax is levied, central
excise duty needs to be withdrawn.
6. CBR is of the view that the case of Wine Shops in Sindh is no different
than Permit Rooms in Punjab except that the later are essentially located in hotels &
restaurants, CBR is also of the view that the Permit Rooms of such hotels & restaurants
are liable to registration as ―retailers‖ under the Sales Tax Act, 1990, as:-
(a)
(b)
such permit rooms are essentially engaged in the retails business of a
sales taxable commodity;
item No.49 of the Federal Legislative List of the Constitution empowers
federal government to legislate for levy and collection of tax on sales and
purchases of goods consumed. The preamble to the Sales Tax Act, 1990,
also takes into account levy of tax on the sale or consumption of goods,
which is no different than the retail tax under the said Act. The supply of
alcoholic liquors from the Permit Rooms i.e. ―supply‖ in terms of section
2(33) of the Act and the sale from the permit Rooms is a ―taxable
activity‖ under section 2(35) thereof; and