SALES TAX

PRACTICE QUESTIONS
CFAP 5: TAX PLANNING & PRACTICES
COMPILED BY: MURTAZA QUAID
 Compiled by: Murtaza Quaid

SALES TAX – PRACTICE QUESTIONS

Question 1. [CFAP 5 Past Paper, Summer 2013, Q6, 18 marks]

Tender Pops Limited (TPL), an unlisted company, is registered under the Sales Tax Act, 1990. TPL is
engaged in the business of manufacturing and supply of consumer goods. The following information has
been extracted from TPL’s records for August 2024:
Rupees
Purchases:
Raw material from local registered suppliers 20,000,000
Local items governed under third schedule (75,000 @ Rs. 150 each) 11,250,000
Packing material from a local cottage industry 2,000,000
Supplies:
Taxable supplies to registered persons 19,000,000
Taxable supplies to un-registered persons 8,000,000
Local third schedule items to wholesalers (55,000 @ Rs. 180 each) 9,900,000
Taxable supplies against international tender for Afghan refugees 3,000,000

The following information is also available:

(i) TPL has entered into a hire purchase agreement with Web Limited for the supply of goods worth
Rs. 459,000 inclusive of a 2% markup.
(ii) Goods worth Rs. 200,000 were supplied to a creditor against the final settlement of his debt of
Rs. 175,000.
(iii) Taxable supplies to registered persons include the sale of old stock at a discounted price of Rs.
350,000. TPL allowed an unusually high discount of 30% to the customer. The discount amount
was however reflected on the invoice.
(iv) The sales tax paid on the electricity bill was Rs. 25,000.
(v) TPL received an advance of Rs. 100,000 for the supply of goods to one of its customers.
(vi) Third Schedule items are sold in the market at a retail price of Rs. 200 per unit.
(vii) Supplies against international tender were made to WFP in full compliance with the procedures
laid down by the State Bank of Pakistan and foreign exchange regulations.
All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable at the rate of 18%.
Required: Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, calculate the sales
tax payable by or refundable to TPL for the tax period August 2024.

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Question 2. [CFAP 5 Past Paper, Winter 2011, Q5, 15 marks]

Sunshine Limited (SL), an unlisted company, is a registered person under the Sales Tax Act, 1990 and is
engaged in the production and supply of three products Alpha, Beta and Gama. Beta is a by-product of
Alpha and is governed under the Third Schedule. It is sold in the market at a retail price of Rs. 25 per unit.
The following information is available from SL’s records for August 2024:

Purchases: Rs. in 000’s

Raw material used in the production of Alpha 10,000
Raw material used in the production of Gama 15,000
Supplies:
Local taxable supplies of Alpha to registered persons 15,000
Local taxable supplies of Alpha to un-registered persons 3,000
Local supplies of Gama to registered persons 18,000
Export of Gama to Turkey 7,000
Local taxable supplies of Beta to wholesalers ( 250,000 units @ Rs. 20 each) 5,000
Supply of 25,000 units of Beta to Export Processing Zone for further processing 625

Additional information:

(i) Supplies of Alpha to registered persons include the sale of Rs. 2,000,000 to an associated
company. The open market price of Alpha at the time of sale was Rs. 4,000,000.
(ii) Free replacement of defective units is made in the case of Alpha, which is sold under warranty.
The market value of replacement units during August 2024 was Rs. 1,000,000.

(iii) SL provided 50,000 units of Beta to its employees free of charge.

(iv) In August 2024, SL imported new machinery from Japan to launch a new product Zeta. The
production of Zeta is expected to commence in January 2025. Sales tax paid on this machinery
amounted to Rs. 3,000,000.

(v) Input tax of Rs. 500,000 was inadvertently not adjusted in the return for the month of July 2024.

(vi) The local supplies of Gama are exempt from the charge of sales tax.

(vii) All purchases are from registered suppliers.

All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable at the rate of 18%.
The above products are not subject to a duty under the Federal Excise Act, 2005.
Required: In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder, calculate
the sales tax payable/refundable/carried forward, if any, for the tax period August 2024.

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Question 3. [CFAP 5 Past Paper, Summer 2010, Q6, 15 marks]

Olive Limited (OL) is an unlisted public company. OL is registered at the Large Taxpayer Unit of the Inland
Revenue Department. It is engaged in the manufacture and trading of FMCG in the country.
During August 2024 following activities were carried out by OL:

Purchases: Rs. in 000’s

(Items subject to sales tax):
- Import of raw material for in-house consumption 15,000
- Import of finished products 8,000
- Packing material manufactured locally 6,000
Supplies:
Manufactured products:
- Local sales 20,000
- Exempt goods 4,000
- Export to Bangladesh 4,000
Commercial imports 10,000

The following information is also available:

(i) To meet the high consumer demand, OL purchased new machinery for Rs. 1,200,000. The
machinery was put to use during the same month. A motor vehicle of Rs. 1,500,000 was also
acquired for the sales department.
(ii) A sales tax of Rs. 20,000 was paid under the Punjab Provincial Sales Tax Ordinance on services
provided by clearing agents for imports.
(iii) Rs. 650,000 was paid against advertisement services in the province of Punjab.
(iv) In July 2024 the excess of input tax over the output tax amounted to Rs.325,000.
Sales tax (other than services) is payable at the rate of 18%. All the above amounts are exclusive of sales
tax, wherever applicable.
Required: In view of the provisions of the Sales Tax Act, 1990, and applicable provincial law, compute the
sales tax liability and net sales tax payable with the return for the tax period August 2024. Show
computation wherever necessary.

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Question 4. [CFAP 5 Past Paper, Winter 2014, Q4, 18 marks]

Harfun Limited (HL) is registered as a manufacturer cum commercial importer with the Inland Revenue
Department for sales tax purposes. Besides carrying on various trading businesses across the country, HL
is primarily engaged in the business of production and supply of syrups and squashes covered under the
Third Schedule of the Sales Tax Act, 1990. The following data has been extracted from HL’s records for the
month of August 2024.

(i) Taxable purchases of raw material of Rs. 8,750,000 were made from registered AOP.

(ii) Packing materials of Rs. 450,000 were purchased from registered distributors.

(iii) Rs. 158,000 was paid to a local beverage company for providing mineral water at HL’s annual
dinner arranged for the entertainment of its customers and employees.

(iv) Preservatives of Rs. 589,000 were purchased from a cottage industry.

(v) Mango and banana worth Rs. 1,500,000 were purchased from a local registered person for further
processing.
(vi) 3,000 boxes of Lemon and Mango squashes were imported from Malaysia at the price of Rs. 550
per box. The value determined by customs authorities under section 25 of the Customs Act, 1969
amounted to Rs. 680 per box. The retail price however was fixed at Rs. 625 per box. HL sold 2,800
boxes of squashes to BM Limited.
(vii) To generate steam for one of its production processes, HL purchased fuel wood from registered
wholesalers for Rs. 1,050,000.

(viii) HL also purchased a fiscal electronic cash register and office equipment from a corporate supplier
for Rs. 650,000 and Rs. 375,000 respectively. These items were purchased on 60 days credit.
(ix) A mixing machine was acquired by HL on a finance lease. The total lease rentals to be paid to the
lessor are Rs. 3,000,000. The fair value of the machine at the inception of the lease amounted to
Rs. 2,500,000. HL has the option to purchase the machine at the end of the lease term (in three
years) and the directors estimate that it is more likely that this option to purchase will be
exercised.

(x) Delivery trucks worth Rs. 2,340,000 were purchased for the timely distribution of goods to
customers.
(xi) Cool daylight solar energy saver lamps were sold to AF Engineering for Rs. 500,000.

(xii) Locally produced squashes worth Rs. 13,800,000 were sold to corporate distributors.

All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable at the rate of 18%.
Required: In the light of the provisions of the Sales Tax Act, 1990 and Rules made there under, compute
the amount of sales tax payable by or refundable to HL for the tax period August 2024.

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Question 5. [CFAP 5 Past Paper, Summer 2015, Q3, 18 marks]

Razi Limited (RL) is an unlisted company and is engaged in the business of production and supply of a large
variety of consumer goods. RL is registered with the Inland Revenue Department for sales tax purposes.

The following data has been extracted from RL’s records for the month of August 2024:

Purchases: Rs. in 000’s

Raw material:
- From local registered suppliers 8,000
- From local un-registered suppliers 2,000
- Import 900
Import of foam from China 1,200

Supplies:
Local:
- Taxable supplies to registered persons 7,200
- Taxable supplies to un-registered persons 3,500
- Exempt goods 250
- Sale of foam imported from China 1,500
Export to Malta 600

Additional information:
(i) RL imported specific machinery at Rs. 1,000,000 from Taiwan for production purposes.

(ii) Purchases from local registered suppliers include the purchase of second-hand and worn clothing
of Rs. 300,000 from Parsa Limited.
(iii) 7,500 boxes of tissue papers were purchased from registered suppliers, not included above, at a
wholesale price of Rs. 60 per box. The retail price of these boxes was Rs. 90 per box. These tissue
papers were used by RL as a packing material.

(iv) Taxable supplies to registered persons include the following:

 Shampoo worth Rs. 700,000 supplied to a registered exporter Baramad Limited.

 Tiles of Rs. 650,000 supplied to Raja (Pvt.) Limited. These tiles were purchased directly from
the manufacturer in July 2024. The retail price of the tiles is Rs.800,000.

(v) Taxable supplies to unregistered persons include the supply of storage batteries worth Rs.400,000
to a private school. The purchase invoice confirms that these batteries were purchased in June
2024 from an importer for Rs. 325,000 against payment of sales tax at the rate of 18%. The retail
price of the storage batteries is Rs. 500,000.

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(vi) Shampoo, tissue papers, foam, tiles and storage batteries are covered under the Third Schedule
of the Sales Tax Act, 1990. All the other items are not specified in the Third Schedule of the Sales
Tax Act, 1990.
(vii) At the end of August 2024, there was no outstanding liability against items mentioned in (ii), (iii)
and (iv) above.

All the above figures are exclusive of sales tax, wherever applicable. Except for the item specified under
the Eight Schedule, sales tax is payable at the rate of 18%.

Required: In the light of the provisions of the Sales Tax Act, 1990 and Rules made there under, compute
the amount of sales tax payable by or refundable to RL for the tax period August 2024. Also compute the
amount of withholding tax, if any.

Note: Show all relevant exemptions, exclusions and disallowances.

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Question No. 2 of Winter 2019 – 19 Marks

Sahulaat Limited (SL) is an unlisted company and is engaged in various businesses across Pakistan. SL is
registered as a manufacturer cum commercial importer and service provider with the Federal and
Provincial Sales Tax Authorities. Besides carrying on various trading businesses, SL is primarily engaged in
the business of manufacturing and supply of household electrical and gas appliances, covered under the
Third Schedule of the Sales Tax Act, 1990. The following data has been extracted from SL’s records for the
month of August 2024:

(i) Raw materials of Rs. 3,650,000 were purchased from an unregistered AOP for the manufacture of
gas appliances.
(ii) Packing materials of Rs. 2,350,000 were purchased from registered distributors for the packing of
electrical appliances. The distributor did not file his return under section 26 by the due date for
June 2024 and July 2024.
(iii) 1,700 litres of paint, covered under the Third Schedule, were imported from Belgium without
retail packing at Rs. 892,500. SL paid customs duty at the rate of 20% at the time of import.
800 litres of paint were sold to a dealer at a special discounted price of Rs. 565 per litre (the
discount was duly shown on the invoice); 600 litres were sold to a wholesaler at a price of Rs.575
per litre and 300 litres to a company in Export Processing Zone at a retail price of Rs.625 per litre.

(iv) 5 kilograms of unworked silver imported from Dubai at Rs. 486,000. The silver was sold, in the
same condition as it was when imported, to a local bullion dealer at Rs. 558,000.
(v) Preservatives of Rs. 690,000 were purchased from a cottage industry for onward sale to the
producers of fruit juices.
(vi) Tiles measuring 625 square meters were purchased in March 2023 from a local manufacturer at
Rs. 665,000. These tiles were sold to unregistered contractors at a wholesale price of Rs. 1,264
per square meter for use in construction projects. The tiles are normally sold in the retail market
for Rs. 1,364 per square meter.
(vii) Accessories and spare parts worth Rs. 500,000 were purchased for delivery vans.

(viii) SL also purchased a fiscal electronic cash register and office equipment from a corporate supplier
for Rs. 735,000 and Rs. 495,000 respectively. These items were purchased on 30 days’ credit.

(ix) Cooking oil, was purchased from a registered manufacturer in July 2024 at Rs. 632,000. Sales tax
was collected by the manufacturer. SL sold the cooking oil to distributors from its retail outlet at
Rs. 758,000.

(x) Electrical appliances worth Rs. 1,200,000 were supplied to a large departmental store in
Islamabad. SL received the payment in four equal instalments with the last payment received on
31 July 2024.

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(xi) SL’s services division provided cold storage facilities worth Rs. 392,000 to various merchants for
storing fruits and vegetables at their storage facility in Lahore.

All the above figures are exclusive of sales tax, wherever applicable.

Required: In the light of the provisions of the Sales Tax Act, 1990 and Rules made there under, compute
the amount of sales tax payable by or refundable to SL and the amount of input tax to be carried forward,
if any, for the tax period August 2024. Also compute withholding tax, wherever applicable.

Note: Show all relevant exemptions, exclusions and disallowances.

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Question No. 4 of Summer 2019 - 16 marks

Caramel Limited (CL) is an unlisted public company engaged in a variety of businesses across Pakistan. CL
is registered as a manufacturer, importer and service provider with the Federal and Provincial Sales Tax
Authorities. The following information has been extracted from CL’s records for the month of August
2024:
Rupees
Purchases:
From registered suppliers 8,064,000
From un-registered suppliers 2,476,000
Imports 1,387,500

Supplies:
Taxable supplies to registered persons 10,882,000
Taxable supplies to un-registered persons 1,370,000

Additional information:
(i) Purchases from registered suppliers include the following:

 Raw material worth Rs. 2,564,000 purchased from a dealer, Moral Associates (MA) for the
manufacture of auto parts and accessories. MA has received a notice u/s 114(4) of the Income
Tax Ordinance, 2001 to file an income tax return for the tax year 2023.
 Fork lifter worth Rs. 1,800,000 purchased for moving goods in CL’s warehouse.

(ii) Purchases from unregistered suppliers include the purchase of water worth Rs. 1,230,000 from a
wholesaler. The water was acquired under the trade name of ‘Healthy Life’ and is used at CL’s
factory. The rest of the purchases were made from a cottage industry engaged in the supply of
taxable goods to manufacturers.
(iii) Import consists of 1500 boxes of food packaging material worth Rs. 1,387,500. These boxes were
imported from Germany and are sold in the same condition as imported.

(iv) Taxable supplies to registered persons include the following:

 Auto parts and accessories worth Rs. 3,205,000 sold to an original equipment manufacturer
(OEM), Madras Motor Company Limited. Auto parts and accessories are designated as
specified goods under the Third Schedule to the Sales Tax Act, 1990.

 Rock phosphate worth Rs. 1,952,000 sold to fertilizer manufacturers. It was imported by CL in
June 2024 for Rs. 1,366,000 and is covered under the Eight Schedule.

 Parts and components for manufacturing LED bulbs worth Rs. 3,435,000 sold to
manufacturers in Peshawar. These parts and components were purchased from a commercial
importer in July 2024 for Rs. 2,460,000.

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 Fumigation services worth Rs. 1,290,000 provided to landlords in district Badin for the
protection of their crops. The rate of tax applicable on such services under the Sindh Sales Tax
on Services Act, 2011 is 13%.
(v) Taxable supplies to unregistered persons include the following:

 Supply of finished fabrics worth Rs. 625,000 to Neil Associates, a distributor in Sialkot whose
total turnover from exempt goods is Rs. 5,200,000.

 Sale of iron bars worth Rs. 238,000. These bars were recovered from the wreckage of CL’s old
factory building. The building was demolished due to its dilapidated condition.

 Sale of second-hand and worn footwear of Rs. 175,000 to a dealer in Multan. Second-hand
worn footwear is covered under the Eight Schedule.

 The rest of the sales were made to the retailers who are liable to pay sales tax through their
electricity bill.

Following further information is also available:(not included in purchases and supplies mentioned above)

 An advance payment of Rs. 300,000 was made to Sanai Enterprise, an unregistered distributor, for
the purchase of detergents, covered under the Third Schedule.
 A life insurance premium of Rs. 200,000 was paid to a Karachi-based insurance company for getting
insurance coverage for two of CL’s directors.

 CL outsourced its share registration and transfer services to a Lahore-based company, Zircon Limited,
at a monthly fee of Rs. 700,000. The rate of tax applicable on such services under the Punjab Sales Tax
on Services Act, 2012 is 16%.

All the above figures are exclusive of sales tax, wherever applicable.
Required: In the light of the provisions of the Sales Tax Act, 1990 and Rules made there under, compute
the amount of sales tax payable by or refundable to CL and input tax to be carried forward, if any, for the
tax period August 2024. Also compute withholding tax, wherever applicable.

Note: Show all relevant exemptions, exclusions and disallowances.

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Question No. 4 of Summer 2021 - 20 marks

Ikhtiar Traders (IT), a sole trader, was engaged in the business of distribution of various goods for many
years. IT was not registered with Inland Revenue Department due to low turnover. However, to diversify
and grow its business, IT acquired a factory in Gwadar Free Zone for the production and supply of
vegetable ghee. IT also converted its business into a limited liability company in the name and style of
Ikhtiar (Pvt.) Limited (IPL) and got registered with the Federal Sales Tax Authority as a manufacturer,
importer, and distributor. The application for registration was made on 25 July 2024 and the certificate of
registration was issued to IPL on 1 August 2024. The production of vegetable ghee is expected to be
commenced next year.
The following information is available from IPL’s records for the month of August 2024:

Additional Information:
(i) Verifiable unsold stock transferred by IT to IPL at the time of conversion includes the following:

 Goods purchased from registered persons on different dates:

o On 15 June 2024 purchased industrial sewing machines for Rs. 300,000.
o On 6 July 2024 purchased live animals and poultry for Rs 250,000.

 Goods purchased from unregistered persons on different dates:

o On 2 July 2024 purchased 45,000 packs of candies at Rs. 35 per pack.

o On 11 July 2024 purchased 800 bags of fertilizers at a discounted price of Rs.3,000 per
bag.

(ii) Purchases from registered suppliers comprise the following:

 Cane molasses worth Rs. 310,000 purchased from a supplier whose name was not appearing
in the active taxpayer’s list.
 Storage batteries purchased for Rs. 650,000. These batteries are sold in the market at a retail
price of Rs. 700,000. IPL paid the amount via online transfer of money into the supplier’s

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business bank account. However, this account has not yet been declared by the supplier to
the Commissioner Inland Revenue.

 Machinery worth Rs. 2,500,000 imported for use at IPL’s new production facility at Gwadar.
All the procedures, limitations and restrictions applicable under the Customs Act, 1969
relating to the import of machinery were duly complied with.

 Hoarding board advertisement worth Rs. 2,000,000 for the promotion of IPL’s products in
Karachi and Lahore. The hoarding board services were provided by a Karachi-based
advertising agency which spend 60% of the cost for advertisement in Karachi and the
remaining 40% for advertisement in Lahore.

(iii) Purchases from unregistered suppliers comprise 50 metric tons of locally produced coal at Rs.
15,000 per metric ton.

(iv) Imports comprise the following:

 4,500 packs of vegetable ghee from Malaysia in retail packing for Rs. 250 per pack. All duties
and taxes were paid at the time of import.
 Raw cotton worth Rs. 1,600,000 from China.

(v) Supplies to registered persons comprise the following:

 3,800 packs of imported vegetable ghee in retail packing at a retail price of Rs. 300 per pack.

 Industrial sewing machines for Rs. 900,000 to Gwadar Special Economic Zone.
(vi) Supplies to unregistered persons comprise the following:

 40,000 packs of candies to several retailers. The candies were supplied in retail packing at a
price of Rs. 40 per pack. Each pack consisted of 25 candies with a retail price of Rs. 2 per candy.
 650 bags of fertilizers to various distributors across Pakistan for Rs. 3,100 per bag. The retail
price of each bag in the market is Rs. 3,300.

All the above figures are exclusive of federal excise duty (FED) and sales tax, wherever applicable.

Required: In the light of the provisions of the Sales Tax Act, 1990, Federal Excise Act, 2005 and Rules made
thereunder, compute the amount of sales tax payable by or refundable to IPL and the amount of input tax
to be carried forward, if any, for the tax period August 2024. Also compute withholding tax, wherever
applicable.

Note: Show all relevant exemptions, exclusions and disallowances.

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