SUBMITTED BY: Sohaib Bilal

Roll NO: LF-1012

CLASS & SEM: BS Accounting & Finance VIII
DUE DATE: December 14th, 2021
SUMITTED TO: Muhammad Usman
SUBJECT: Business Taxation-II

ASSIGNMENT-2

TOPIC
History of Sales Tax in Pakistan
A sales tax is a tax paid to a governing body for the sales of certain goods and services.
Usually, laws allow the seller to collect funds for the tax from the consumer at the point
of purchase. When a tax on goods or services is paid to a governing body directly by a
consumer, it is usually called a use tax. Often laws provide for the exemption of certain
goods or services from sales and use tax, such as food, education, and medicines.

Sales tax was imposed in Canada in 1920 and are still in force with some modifications.
In the United States, Federal Government has never sure officially this tax like sales tax.
It was an assortment of commodity tax both at manufacture and retail levels and it was
introduced in 1930. Great Britain introduced a purchase tax in 1940. Before the partition
of the subcontinent, India’s Sales Tax was regarded under the item of 48 of the
provincial legislatures in the seventh schedule to the Government of India Act, 1930.
Pakistan adopted General Tax Act which was earned by the provincial government in
Punjab.

Federal Government in 1948 took over the sales tax and an addition were made to the
federal legislative list an item No. 54B. Pakistan General Sales Tax Act, 1948 came into
force on the 1st day of April 1948, which was based on the multiple point tax system.

In 1950, a sales tax inquiry committee was appointed to examine and report on the
administration, incidence, general structure, and leakage of sales tax revenue. The
committee made various recommendations including the adoption of the single point
tax system and the collection of tax in respect of imported goods at the import stage
along with customs duty.

The present Sales Tax Act was introduced in the federal legislature on the 30th day of
March 1951 to give effect to the recommendations of the committee. After discussions
and debates in Parliament, the bill was passed by the legislature and was given consent
by the time Governor-General on the 20th day of April 1951.

Sales Tax could not be charged on importation and exportation of commodities but only
consumption, this was further improved by the presidential order, Taxation of Sales and
Purchase Order, 1960, on the 30th day of June 1960, according to which the power to
impose taxes on the sales, purchases, consumption, importation, exportation,
manufacture and production of goods was conferred since 31st day of March 1948. The
preamble of the Act was amended by inserting the words “importation and exportation,
production, and manufacture” after the word “sale”. Sales tax when levied was fixed at
10% but increased to 12.5% from 1st July 1961 and again further increased to 15% from
1st July 1964. A surcharge of 25% of the sales tax was levied on the sales of taxable
manufactured goods by the Finance Supplementary Act, 1965 which was done to meet
defense requirements. However, the Defence Surcharge and Rehabilitation Tax were
abolished by the Finance Ordinance, 1972. The Federal Government has the powers to
enhance the general limit or general rates of sales tax or reduce such rates by a
notification published in the official gazette.

 Sales Tax Act 1990

By Finance Ordinance, 1990, the Sales Tax Act, 1951 has been completely substituted by
a new Act known as Sales Tax (Amendment) Act, 1990. This complete change has been
made to update the Act so that it should be able to meet the country’s economy.
Moreover, the government has tried to simplify the rules regarding sales tax for the
benefit of assesses and collection authorities. The 16 chapters of the repealed act have
now been replaced by 10 new chapters. The new Act became effective on 1st July 1990.

The Act prescribed a Value Added Tax (VAT) type system in which the value-added
component at each stage of business transaction could be taxed. The sales tax is
chargeable from a registered person at import and sale of taxable manufactured goods.
Tax credit or input tax is allowed when the registered person keeps a proper record of
claim regarding tax invoice and bill of entry. The goods meant for export were zero-
rated. The tax paid on raw materials and other goods purchased in the course of
business is deducted automatically while determining the tax liability. The new system is
based on self-assessment/clearance procedures and payment of tax.

 Salient Features of VAT Type System

 Administrative structure changed from geographical jurisdiction to functional
division.
 Introduction of combined return-cum-payment challan form.
 Filing of return-cum-payment challan in the bank.
 Simplified record keeping i.e., a register for sales and a register for purchases
and issuance of tax invoices.
 No posting of sales tax officials on the business premises.
 No authentication of documents by the Sales Tax officials.
 No checking of taxable goods during transportation.
 No seizure of goods during transportation or otherwise.