Sales Tax Instructions

Sales Tax Instructions, 2009
‗supply of goods‘ within the meaning of sub-section (33) of section 2 of Sales Tax Act,
1990 and thus attracts sales tax.
2. On consultation with the Law and Justice Division, Board has observed
that leasing companies are non-banking financial institutions which, inter-alia, provide
funds for acquisition of foreign or local machinery to registered persons (taxpayers). The
invoices or bills of entry of such machinery are usually in the name of such registered
taxpayers but on acquiring the machinery, they enter into ―sale and lease-back
agreements‖ with the leasing companies. During the currency of such agreements, the
title of the machinery remains with the leasing companies, though it simultaneously
remains installed in the factory for use by such registered persons. The machinery is deleased
on repayment of loan as per agreed terms and conditions.
3. The transactions called the ―financial lease‖ have been specifically
excluded from the definition of the term ―supply‖ through the Finance Ordinance, 2000.
―Sales and lease-back‖ transaction is a mode of securing the amount of loan by the nonbanking
financial institutions. Since in such a transaction where there is neither any
intention to actually sell the machinery or transfer its title or possession, nor such
financial institutions need the machinery, and the real intention of the transaction is
merely a ‗disguised security‘ against a lease contract, such transactions essentially fall in
the category of ―financial services‖ which do not attract sales tax.
4. It is therefore, clarified that sales tax is not chargeable on such
transactions.
[Issued by the CBR, Islamabad under the signature of Dr. Ashfaq Ahmed Tunio,
Secretary (ST-L&P) addressed to all the Collectors of Sales Tax.]
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C.No.1(33)STP/93 DATED 26 TH FEBRUARY, 2001
SUBJECT:- NON-COMPOUNDING OF ADDITIONAL TAX UNDER
SECTION 34 – CLARIFICATION REGARDING.
I am directed to refer to section 7 of Sales Tax (Amendment) Ordinance, 2001
(VII of 2001) where under an explanation has been added to section 34 of the Sales Tax
Act, 1990 to the effect that for the purpose of the said section ―tax due‖ does not include
the amount of penalty. It may be re-called that in the Finance Ordinance, 2000 not only
the rate of additional tax was reduced from 5% to 1.5% of the tax due per month or any
part thereof but also the rate was made simple (non-compound) by omitting the then
existing explanation which included additional tax in the expression ―tax due‖ for the
purpose of section 34.