ISLAMABAD: The Federal Board of Revenue (FBR) does not charge double taxation on income as levies sales tax on goods whereas provinces levy sales tax on services. Thus there is no double taxation in respect of levy of sales tax.
Double taxation is a taxation principle referring to income taxes paid twice on the same source of earned income. It can occur when income is taxed at both the corporate level and personal level. Double taxation also occurs in international trade when the same income is taxed in two different countries.
A well placed official source at FBR explained Customs Today that income tax was a tax on person’s income and was leviable on taxable income. Similarly sales tax is a tax on sales of goods. Both these taxes are leviable under the existing provision of Income Tax Ordinance, 2001, and Sales Tax Act, 1990, respectively.
However, the source said that the double taxation on income (income tax) and transaction (sales tax) arose when it was levied twice on same income or transaction by the same jurisdiction or the tax on same income or transaction was levied by two jurisdictions simultaneously.
In respect of double taxation on income by two jurisdictions the source observed that again foreign tax credit could be claimed under section 103 of Income Tax Ordinance, 2001, which eliminated double taxation.
In Pakistan, the source added that the sales tax rate was a tax charged to consumers based on the purchase price of certain goods and services. The benchmark for the sales tax rate refers to the highest rate. Revenues from the sales tax rate are an important source of income for the government.
“Sales tax is chargeable on all locally produced and imported goods except computer software, poultry feeds, medicines and unprocessed agricultural produce of Pakistan and other goods specified in Sixth Schedule to The Sales Tax Act, 1990” the source maintained.
The source recalled that sales tax was a provincial subject at the time of partition. It was being administered in the provinces of Punjab and Sindh as provincial levy. Sales tax was declared a federal subject in 1948 through the enactment of General Sales Tax Act, 1948 and in 1952, this levy was transferred permanently to the Central Government.
Sales tax was levied at the standard rate of 6 pies per rupee at every stage whenever a sale was effected. The trading community protested against this system, and this resulted in the enactment of Sales Tax Act 1951.
