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What to Do About Sales Tax Registration in Pakistan

What to Do About Sales Tax Registration in Pakistan – 2025: In Pakistan, being an income tax filer does not automatically require sales tax registration, as these are separate tax regimes overseen by the Federal Board of Revenue (FBR). Sales tax registration is mandatory only if your business activities meet specific criteria outlined in the Sales Tax Act, 1990.

Here’s a step-by-step guide:

1. Assess Whether You Need to Register for Sales Tax

Sales tax registration is required for certain businesses based on their activities or turnover. Check if your business falls into these categories:

• Importers: All individuals or businesses importing goods must register.
• Manufacturers: If your annual turnover from taxable supplies exceeds PKR 10 million or annual utility bills (electricity, gas, telephone) exceed PKR 800,000, you must register (unless you’re a cottage industry).
• Wholesalers and Distributors: Those involved in wholesale or distribution, including dealers, need to register.
• Retailers: Specific retailers must register, such as those with electricity bills over PKR 1.2 million in the last 12 months, operating in air-conditioned malls, national/international chains, shops over 1,000 square feet, or accepting debit/credit card payments.
• Service Providers: Certain services (e.g., hotels, couriers) require registration if they collect or pay tax.
• Zero-Rated Supplies: Businesses making zero-rated supplies (e.g., exporters) must register.
• Jewelry Sellers: Shops over 300 square feet selling precious metal jewelry must register.

Action: If your business doesn’t meet these criteria (e.g., you’re a salaried individual or small-scale business below thresholds), you may not need to register. If it does, registration is mandatory.

2. Implications of Not Being Registered

If you’re not registered for sales tax:

• Withholding Tax: Unregistered persons face a 3% withholding tax on supplies to registered buyers and cannot claim input tax credits.
• Compliance Risks: If registration is mandatory but you haven’t registered, you may face penalties or compulsory registration by the FBR.
• Business Opportunities: Registering allows input tax credits and enhances credibility.

Action: Evaluate if voluntary registration benefits your business to reduce costs or improve credibility.

3. Steps to Register for Sales Tax (If Required)

If registration is needed:

• Obtain a National Tax Number (NTN): As an income tax filer, you likely have an NTN (your CNIC for individuals). If not, apply via the FBR’s IRIS portal or at a Regional Tax Office (RTO).
• Gather Documents:
  • CNIC of the owner or principal officer.
  • Business registration documents (e.g., partnership deed).
  • Bank account maintenance certificate with IBAN.
  • Utility bills (not older than 3 months).
  • Business details (name, acquisition date, activity).
  • Balance sheet (if required).
  • Pictures of utility meters and business premises.
• Apply via IRIS Portal:
  • Log in to the IRIS portal.
  • Select Form 14(1) (Simplified Registration Form).
  • Fill in business details and upload documents.
• Biometric Verification: Visit a NADRA e-Sahulat Centre within 30 days for verification.
• Timeline: The Sales Tax Registration Number (STRN) is issued within 2–7 days if documents are complete.

Action: Start registration promptly if required. Consider professional services for assistance.

4. Provincial Sales Tax

If you provide services (e.g., IT, consultancy), you may need to register for provincial sales tax with the relevant authority (e.g., Punjab, Sindh). Rates vary (e.g., 15% in Sindh, 19.5% for telecommunications).

Action: Confirm if your services require provincial registration.

5. File Sales Tax Returns

If registered, file monthly sales tax returns via the IRIS portal, even for nil returns, by the 18th of each month.

Action: Set up a system for timely filing to avoid penalties.

6. Seek Professional Help

Tax laws are complex. Consult a tax professional or service for guidance on registration and compliance.

Action: Contact a tax consultant for tailored advice.

7. Check Active Taxpayer Status

Verify your status on the Sales Tax Active Taxpayer List via SMS (send STRN to 9966) or the FBR portal.

Action: Regularly check your status to ensure compliance.

Key Notes

• If registration isn’t mandatory, you can continue without it but face higher withholding tax.
• Voluntary registration may benefit your business.
• Ensure timely return filing to avoid penalties.
• Contact the FBR helpline for clarification.

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Handling Money Received from Father/Mother, Brother, or Sister for Rent-Sharing

Money received from your family for rent-sharing or similar arrangements may have tax implications under the Income Tax Ordinance, 2001.

Here’s how to handle it:

1. Determine the Nature of the Payment

• Rent-Sharing: If it’s a contribution to shared rent (e.g., for a shared home), it’s generally not taxable as it’s a personal arrangement.
• Rental Income: If you own/lease a property and your father pays rent as a tenant, it’s taxable under “Income from Property.”
• Gift or Support: If it’s financial support or a gift, it’s exempt under Section 39(3) as a gift from a relative, if not business-related.

Action: Clarify if it’s rent-sharing, rental income, or a gift. Check for a formal agreement.

2. Tax Implications for Rental Income

If it’s rental income:

• Taxable Income: Taxed under “Income from Property” at progressive rates (2025 slabs):
  • Up to PKR 600,000: 0%
  • PKR 600,001–1,200,000: 5% of excess over PKR 600,000
  • PKR 1,200,001–2,400,000: PKR 30,000 + 10% of excess over PKR 1,200,000
  • Higher slabs apply for higher incomes.
• Withholding Tax: Your father (if an individual) may not deduct withholding tax, but you must declare the income.
• Deductions: Claim expenses like property taxes or repairs.

Action: Calculate and report rental income in your tax return.

3. Sales Tax Consideration

Rental income from residential property is generally not subject to federal sales tax. Provincial sales tax may apply to commercial property leasing but not personal rent-sharing.

Action: Confirm with the relevant provincial authority if sales tax applies.

4. Reporting in Your Income Tax Return

• Rental Income: Declare under “Income from Property.”
• Exempt Income: Report gifts or cost-sharing as exempt income for transparency.
• Documentation: Keep records (e.g., bank transfers, agreements).

Action: File your return by September 30, including relevant income details.

5. Practical Steps for Compliance

• Maintain Records: Keep evidence of payments (e.g., bank statements).
• Consult a Professional: Seek advice from a tax consultant for complex cases.
• Check Active Taxpayer Status: Verify via SMS (send NTN to 9966) or the FBR portal.

Action: Organize records and consult a professional if needed.

6. When It’s Not Taxable

If it’s a gift or personal rent-sharing:

• Likely exempt from income tax.
• No sales tax applies.
• Report as exempt income for transparency.

Action: Declare as exempt income in your return.

Key Notes

Contact the FBR helpline for guidance.

If total income is below PKR 600,000, no tax may apply, but file a return.

Non-reporting of taxable income can lead to penalties (e.g., PKR 40,000 for late filing).

Document payments to avoid FBR scrutiny.

Calculate your Income Tax