Sales Tax and Withholding Tax in Pakistan

Day 20: Sales Tax and Withholding Tax Overview in Pakistan

Sales Tax and Withholding Tax Overview in Pakistan

In Pakistan’s taxation framework, Sales Tax and Withholding Tax (WHT) play pivotal roles in ensuring tax collection and business transparency. Whether you’re running a sole proprietorship, partnership, or private company, understanding these tax types is essential for compliance.

What is Sales Tax?
Sales tax is levied on the supply of goods and certain services at various stages of production and distribution. It’s a value-added tax where the burden ultimately falls on the final consumer.

Key Facts:

Standard Sales Tax Rate: 18%
Registration Threshold: Rs. 10 million annual turnover or Rs. 1 million monthly utility bill
Filing Frequency: Monthly via STR (Sales Tax Return) on FBR’s IRIS or e-portal
Due Date: 15th of every month for the previous month

Who Must Register for Sales Tax?

Manufacturers and importers
Wholesalers and retailers (above the threshold)
Service providers in provinces with their own tax authorities (e.g., PRA, SRB)

What is Withholding Tax (WHT)?
Withholding tax is a deducted-at-source tax collected from payments such as salary, services, rent, contracts, and more. The deducting party is responsible for depositing it into the government treasury.

Examples of Common WHT Deductions:

Salary payments by employers
Rent paid to landlords
Payments to service providers, freelancers, or consultants
Bank transactions exceeding specific limits (cash withdrawal, transfer)

Compliance for Businesses:

Businesses must deduct and deposit WHT where applicable
File monthly Withholding Tax Statements (Form 165)
Issue Certificates of Tax Deduction to vendors

Consequences of Non-Compliance:

Heavy penalties and default surcharge
Disallowance of tax credits
Loss of active taxpayer status (ATL exclusion)

How to Stay Compliant:

Register for Sales Tax on FBR’s portal.
Track vendor NTN and ATL status before making payments.
File monthly returns diligently.
Use FBR’s IRIS system or authorized POS/invoicing software for automated calculations.

Final Thoughts
Sales Tax and Withholding Tax ensure the tax net is broadened and compliance is enforced across economic sectors. For businesses in Pakistan, these are not optional — they are vital for smooth operations, credibility, and avoiding legal consequences.

Need Expert Help with Sales Tax and WHT?
At MTF & Co. Tax and Corporate Advisory, we simplify taxation for individuals, startups, and established businesses. Whether it’s sales tax registration, withholding tax compliance, or monthly return filing, our expert team ensures your tax matters are handled professionally and efficiently.