Milk, rice, wheat flour, other items: Big retailers can charge no sales tax

The big retailers integrated with the Federal Board of Revenue (FBR) cannot charge any sales tax on sale of milk, rice, wheat flour, pulses, fruits & vegetables (except canned and packaged), uncooked meat, poultry, eggs, stationary items, medicines, laptops and personal computers, etc.

According to the Frequently Asked Questions (FAQs) issued by FBR on the issue of POS integration, the rate of sales tax for items sold by integrated retailers shall be the same as for all other suppliers as provided under the Sales Tax Act, 1990. Only exception is for locally manufactured textile and leather items which, if sold by integrated retailers, are subject to concessionary rate of 14% and, if sold by any other supplier, are subject to 17% standard sales tax.

Category-wise rates of sales tax for items sold by integrated retailers revealed that reduced rate of sales tax would be applicable on items falling in Eighth Schedule to the Sales Tax Act. The dairy items other than milk, fat filled milk (tea-whitener), flours other than that of wheat, if sold in retail packing under a brand name, are subject to sales tax rate of 10%; and prepared products of meat or meat offal, if sold in retail packing under a brand name, are subject to sales tax rate of 8% and precious jewellery at 1.5% of value of gold, plus 0.5% of value of diamond, used therein, plus 3% of making charges.

The FBR will charge 14 percent sales tax on locally manufactured garments, shoes, bags, made-ups, etc, of textile, leather and artificial leather.

In case of mobile phones and satellite phones being sold by integrated retailers, the FBR has clarified that under Ninth Schedule, sales tax is to be paid by the importer and manufacturers only. No sales tax to be charged on subsequent supplies. However, suppliers may pass on the burden of sales tax charged on their purchases in their selling price.

The standard rate of 17 percent sales tax would be applicable on items in Third Schedule except fertilizers, imported textile and leather items, electronic items, watches, sugar, hardware, sanitary ware, kitchenware, toys, furniture, sports goods, surgical instruments, crockery, plastic products, and imitation jewellery, etc.

The POS integration is mandatory for all tier-1 retailers irrespective of the items they are dealing in. All tier-1 retailers whether dealing in textile and leather items or any other item are required by law to integrate their POSs with FBR's system, the FBR maintained.

All tier-1 retailers are required to integrate all their POS with FBR's computerized system, the FBR said.

The software employed by the retailer should be able to handle returns and exchanges. Such software makes the necessary adjustment to sales revenue and the same is also reflected in sales reported to the FBR. In case such returns and exchanges are not properly reflected, the retailer can make use of debit/ credit notes and record the same in Annex-I of the monthly sales tax return.

The retailer cannot delete any entries from Annex-C. However, if any sales could not be accommodated in Annex-C for any reason, the retailer is under obligation to add such sales to Annex-C. In case of return or cancellation of supply, the retailer should make adjustments through debit/ credit notes to be recorded in Annex-I. Q.

When asked if a tier-1 retailer should also report his online sales to FBR, it was replied that for online sales, the tier-1 retailer should integrate the utility provided by FBR in his website and ensure that the sales are reported to FBR and FBR invoice number and QR code are printed on the invoice generated and sent to the online customer.

Under section 33 of the Sales Tax Act, 1990, as amended by Tax Laws (Second Amendment) Ordinance, 2019, specific penalty has been provided for retailers failing to integrate. Under the newly added clause 25 in the Table in section 33, a tier-1 retailer failing to integrate shall be liable to penalty of Rs 1 million, and in the event of continuing failure may face sealing of his premises and embargo on his sales. Further, disadvantage of failure to integrate, as provided in sub-section (6) of section 8B, is that the adjustable input tax of the retailer shall be reduced by 15%.

Under the same clause 24, any person who abets or connives with the retailer in suppression of sales or non-reporting of sales may be sentenced to imprisonment for a term which may extend to one year and also to a fine up to two hundred thousand rupees. Software vendor providing for skimming in the software shall be subject to these penal provisions.

All those establishments, whether manufacturers or not, who sell their goods to general public for consumption are retailers as provided in clause (28) of section 2 of the Sales Tax Act, 1990. Therefore, bakeries and sweetmeat shops, selling goods to general public are also retailers. Therefore, such bakeries and sweetmeat shops, whether or not manufacturers also, shall be treated as tier-1 retailer if they fall in the definition of tier-1 retailer as in clause (43A) of section 2 and they shall be accordingly required to integrate their POS.

It is mandatory for all restaurants to integrate their POS. Chapter XIV-A of the Sales Tax Rules, 2006 pertains to restaurants, snack bars and cafes, etc. All such establishments, whether or not falling in category of tier-1 retailers, are required to integrate their POS under the said Chapter, the FBR added.