Sales Tax Exemption in Pakistan Sixth Schedule, zero rating and SRO relief, applied correctly

Exempt, zero-rated and reduced-rate are not the same thing

Under Pakistan's Sales Tax Act, an exempt supply carries no tax but usually loses the input tax on related purchases. A zero-rated supply is taxed at zero and keeps its input tax. A reduced rate charges less tax, often only if conditions are met. Choosing the wrong one, or claiming relief without meeting its conditions, creates tax, surcharge and penalty on every invoice.

Section 13 of the Sales Tax Act, 1990 exempts the goods and imports listed in the Sixth Schedule, and allows further exemptions by notification. Section 4 zero-rates exports and the supplies listed in the Fifth Schedule. The Eighth Schedule provides reduced rates for specified goods, many tied to conditions such as end use, the type of buyer or a certificate from a ministry or other authority. Many entries refer to Pakistan Customs Tariff headings, so classification is the first step in any exemption claim.

Where a business makes both taxable and exempt supplies, input tax must be apportioned, and the share attributable to exempt supplies is generally not admissible under section 8(2) and the Sales Tax Rules, 2006. Exempt suppliers still need to keep records, and in many cases remain registered and file returns. Exemptions have been withdrawn or narrowed in recent Finance Acts, so every claim should be checked against the law in force for the period. Buyers, auditors and FBR will all ask the same question: which entry, which condition and what evidence. Our review answers all three in writing for each product you supply.

Income tax exemptions are a separate matter; see tax exemption certificates. For a written opinion on a specific product or contract, our sales tax advisory service gives a reasoned answer, and our feasibility studies team can model how an exemption or its withdrawal affects a project.