Who Is Not Required to Register Under the Sales Tax Act 1990 Pakistan

Introduction

Understanding sales tax registration requirements under the Sales Tax Act, 1990 is essential for every business owner, trader, manufacturer, and service provider in Pakistan. A common misconception is that every business must register for sales tax — but the law does not require registration in all cases.

The Sales Tax Act, 1990 imposes a legal obligation on certain persons to register as sales tax payers with the Federal Board of Revenue (FBR). However, this obligation does not apply universally. Specific categories of persons are explicitly excluded from the registration requirement — and understanding these exclusions can save businesses from unnecessary compliance burdens, costs, and administrative obligations.

This article focuses on one of the most important exclusions: persons engaged exclusively in exempt supplies under the Sixth Schedule of the Sales Tax Act, 1990.

Who Is Required to Register Under the Sales Tax Act, 1990?

Before understanding who is exempt from registration, it helps to know the general registration requirement. Under Section 14 of the Sales Tax Act, 1990, the following persons are required to register:

• A manufacturer whose annual turnover from taxable supplies exceeds Rs. 10,000,000 (PKR 1 crore)
• An importer of taxable goods
• A retailer whose annual turnover exceeds the prescribed threshold
• A distributor, wholesaler, or dealer of taxable goods meeting the turnover threshold
• Any person making zero-rated supplies (exporters) who wishes to claim input tax refunds
• Any person who voluntarily applies for registration

The critical phrase here is "taxable supplies." The registration obligation is tied to the making of taxable supplies. Persons who do not make taxable supplies — because all their goods fall under the Sixth Schedule — are excluded from the mandatory registration requirement.

Who Is NOT Required to Register?

Under the Sales Tax Act, 1990, a person is not liable to be registered if they are entirely engaged in the purchase and sale of exempt supplies as listed in the Sixth Schedule.

This means that if:

1. All your business transactions involve exempt goods only
2. Those goods are specifically mentioned in the Sixth Schedule of the Sales Tax Act, 1990
3. You do not make any taxable or zero-rated supplies whatsoever

Then you are not legally required to obtain sales tax registration from FBR.

What Are Exempted Supplies?

Under the Sales Tax Act, 1990, exempted supplies are goods and services on which no sales tax is charged. These are formally defined as supplies that are either:

• Taxable goods on which no sales tax is charged — goods that would normally be taxable but are specifically exempted by inclusion in the Sixth Schedule
• Taxable goods on which no further tax applies — goods where the tax has already been collected at an earlier stage and no further tax is due at the point of supply
• Imports of goods that are exempt from sales tax — certain imported goods that are exempt from GST at the import stage under the Sixth Schedule
• Supplies that remain exempt even if the supplier is registered — even if a registered person sells exempt goods, those specific supplies remain free from sales tax

In practical terms, exempt supplies are goods legally declared tax-free under the law — typically because they are essential commodities, basic food items, life-saving medicines, or goods that serve specific public interest purposes.

Common Examples of Exempt Supplies Under the Sixth Schedule

How to Determine Whether Your Goods Are Exempt

To correctly determine whether your goods qualify as exempt supplies under the Sixth Schedule, follow these steps:

1. Obtain the Current Text of the Sales Tax Act, 1990
   Download the latest version of the Sales Tax Act, 1990 from the FBR website at www.fbr.gov.pk. Ensure you have the version that reflects all amendments made by the most recent Finance Act.
2. Review the Sixth Schedule
   Turn to the Sixth Schedule appended to the Act. This schedule lists all goods that are exempt from sales tax. Check whether your product appears in this list by its description, HS Code (Harmonised System tariff code), or category.
3. Check the Specific Conditions
   Many entries in the Sixth Schedule come with specific conditions — for example, an item may be exempt only when imported for a specific purpose, or only when supplied by a specific type of entity. Read the conditions carefully.
4. Cross-Reference with the Pakistan Customs Tariff
   If your goods are identified by HS Code in the Sixth Schedule, verify the HS Code of your specific goods against the Pakistan Customs Tariff to ensure the code matches.
5. Consult a Registered Tax Practitioner
   If there is any doubt about the classification of your goods, consult a sales tax expert or registered tax practitioner. Incorrectly assuming exemption when your goods are actually taxable can lead to significant penalties and back-tax demands.

Can a Person Dealing in Exempt Supplies Claim Input Tax?

This is one of the most important compliance points that many businesses misunderstand. The answer is clear under the law:

No — a person dealing exclusively in exempt supplies cannot claim input tax adjustment or refund.

The reason is straightforward:

• Since no sales tax is charged on exempt supplies, there is no output tax generated from sales
• Input tax adjustment works by setting off input tax against output tax. With zero output tax, there is nothing to adjust against
• The Sales Tax Act explicitly does not allow input tax claims or refunds for persons dealing exclusively in exempt supplies
• The input tax paid on purchases becomes part of the cost of the exempt goods — it cannot be recovered from FBR

What About Mixed Businesses — Taxable and Exempt Supplies Together?

Many businesses do not deal in purely exempt or purely taxable goods — they deal in a mix of both. For example, a grocery store may sell both fresh vegetables (exempt) and packaged food products (taxable). In such cases, the rules become more complex.

When a business makes both taxable and exempt supplies:

1. The business is required to register for sales tax (if the taxable supplies meet the threshold)
2. The business must maintain separate records for taxable and exempt supplies
3. Input tax must be apportioned between taxable and exempt supplies using the ratio prescribed under the Sales Tax Rules, 2006
4. Only the portion of input tax attributable to taxable supplies can be adjusted against output tax
5. The input tax attributable to exempt supplies cannot be claimed — it becomes an additional cost

Practical Example — Pure Exempt Supplier

A seller operates a fresh produce business — selling only fresh vegetables and fruits (listed in the Sixth Schedule as exempt goods). Consider the following scenario:

• Annual sales: Rs. 5,000,000 (all exempt goods)
• Purchases including packaging: Rs. 3,000,000 (GST paid on packaging: Rs. 540,000 at 18%)
• Sales tax charged on vegetable sales: Rs. 0 (exempt)
• Input tax adjustment or refund available: Rs. 0
• Sales tax registration required: No
• Net effect: Rs. 540,000 GST paid on packaging becomes a cost to the business

This seller has no sales tax obligations — no registration, no monthly returns, no output tax to collect. However, they also cannot recover the input tax they paid on their purchases. The GST on packaging permanently adds to their cost of doing business.

Practical Example — Mixed Supplier

A grocery store sells both fresh vegetables (exempt) and packaged biscuits (taxable at 18%). Annual taxable sales exceed Rs. 10,000,000.

• Registration required: Yes (taxable sales exceed threshold)
• Output tax on biscuit sales: Collected at 18%
• Input tax on packaging purchased: Partially adjustable (only the portion related to biscuits)
• Input tax on packaging for vegetables: Not adjustable — becomes a cost
• Monthly return: Must be filed, with taxable and exempt supplies declared separately

Frequently Asked Questions (FAQs)

Q1: If I am not required to register, can I voluntarily register for sales tax?
Yes. The Sales Tax Act, 1990 allows voluntary registration. A person dealing in exempt supplies may choose to register voluntarily if they wish to participate in the formal tax system or if they anticipate future changes in their product mix. However, voluntary registration does not give them the right to claim input tax on exempt supplies.

Q2: What happens if I deal in exempt goods but register for sales tax anyway?
You are still a registered person and must file monthly sales tax returns (declaring nil taxable supplies). You cannot claim input tax on your exempt supply purchases. Registration in this case creates compliance obligations without providing any financial benefit.

Q3: Can a fresh vegetable seller claim input tax on the crates and packaging used?
No. Since fresh vegetables are exempt supplies, the input tax paid on crates and packaging — even though those items are taxable — cannot be claimed. All input tax related to exempt supplies is irrecoverable.

Q4: The Sixth Schedule is updated every year — how do I keep track?
The Sixth Schedule is amended through Finance Acts passed annually (usually in June). Subscribe to FBR's updates at www.fbr.gov.pk or consult a tax professional annually to confirm whether your goods remain in the exempt category.

Q5: A wholesaler sells both exempt flour and taxable cooking oil. Must they register?
If the taxable supplies (cooking oil) exceed the registration threshold, yes — they must register. They will need to separate their records, collect output tax on cooking oil sales, and apportion input tax between the two categories.

Q6: Are services also covered by the Sixth Schedule exemption?
The Sales Tax Act, 1990 primarily covers goods. Services are generally subject to Provincial Sales Tax (PST) administered by provincial revenue authorities (PRA in Punjab, SRB in Sindh, KPRA in KPK, BRA in Balochistan). The exemption discussed here relates to goods under the federal Sales Tax Act, 1990 only.

Q7: If I am not registered, can FBR still audit my business?
Yes. FBR retains the power to conduct inquiries and audits of businesses even if they are not registered, particularly if FBR believes they should be registered. Maintaining proper records of your goods and their exempt status protects you in any such inquiry.

Conclusion

The Sales Tax Act, 1990 does not impose a blanket registration requirement on all businesses in Pakistan. Persons engaged exclusively in the supply of exempt goods listed in the Sixth Schedule are specifically excluded from the mandatory registration obligation.

However, this exclusion comes with an important trade-off: no input tax adjustment or refund is available on purchases related to exempt supplies. The GST paid on inputs becomes a permanent cost to the business.

For businesses dealing in a mix of taxable and exempt goods, registration is required once taxable supplies cross the threshold — and careful record-keeping and input tax apportionment become essential compliance requirements.

Always verify the current status of your goods in the Sixth Schedule and consult a qualified sales tax professional to ensure you are correctly assessed for your registration obligations.