Does a company that supplies taxable goods have to register for sales tax and file monthly returns?

A company’s income tax registration and its sales tax registration are two separate things under two separate laws. Incorporation brings the income tax duties with it, but sales tax registration depends on whether the company falls into one of the categories in section 14 of the Sales Tax Act, 1990.

What does the law say?

Section 14(1) requires registration of every person making taxable supplies in Pakistan, including zero-rated supplies, in the course or furtherance of a taxable activity, who falls in any of these categories:

Clause	Category
(a)	A manufacturer who is not running a cottage industry
(b)	A retailer liable to pay sales tax under the Act or rules, except one paying through the electricity bill under section 3(9)
(c)	An importer
(d)	An exporter who intends to obtain a sales tax refund against zero-rated supplies
(e)	A wholesaler, dealer or distributor
(f)	A person required under another federal or provincial law to register for a duty or tax collected as if it were sales tax

Section 14(1A), added by the Finance Act, 2025, separately requires registration of persons selling digitally ordered goods through an online marketplace, website or app, other than cottage industry and electricity-bill retailers.

Section 2(5AB) defines a cottage industry as a manufacturing concern with no industrial gas or electricity connection, located in a residential area, with no more than ten workers and annual turnover from all supplies not above eight million rupees. All four conditions must be met.

Section 14(2) lets a person not making taxable supplies apply for registration if it needs it for imports or exports. Section 14(2A) lets the Commissioner compulsorily register a person who should be registered but has not applied, after a hearing.

How is it different from income tax registration?

Section 181 of the Income Tax Ordinance, 2001 requires every taxpayer to apply for registration under that Ordinance. That gives the company its income tax identity. It does not register the company under the Sales Tax Act. A company that only provides services may be outside section 14 altogether, and sales tax on services in the provinces is charged under provincial laws that are outside this corpus.

What are the obligations after registration?

Charging tax. Section 3(1) charges sales tax at eighteen percent of the value of taxable supplies made by a registered person, unless a schedule or notification sets another rate.

Returns. Section 26(1) requires every registered person to furnish a true, complete and correct return by the due date, showing purchases, supplies, tax due and paid for the tax period. Section 2(43) makes a tax period one month unless the Board notifies otherwise, and section 2(9) makes the due date the 15th day of the month following the end of the tax period, or another date the Board specifies. The Board may require quarterly returns or an additional annual return from some persons.

Revisions. Section 26(3) allows a revised return within one hundred and twenty days, with the Commissioner’s approval. Under section 26(3A) no approval is needed within sixty days if the revision increases tax payable or reduces the refund, unless the Board’s risk system restricts it.

Late payment. Section 34(1)(a) charges default surcharge at twelve percent per annum or KIBOR plus three percent per annum, whichever is higher, on tax not paid on time or on inadmissible credit or refund. Under section 34(2)(b), for unpaid tax the period runs “from the 16th day of a month (following the due date of the tax period to which the default relates) to the day preceding the date on which the tax due is actually paid”.

Worked example (illustrative figures)

Chenab Sports Industries (Pvt) Ltd is incorporated in Sialkot and starts manufacturing footballs in a factory with an industrial electricity connection. It fails the cottage industry test, so section 14(1)(a) requires it to register.

For its first month, suppose its tax due after input tax adjustment is Rs. 1,800,000, and it pays 73 days late. Assume twelve percent per annum is the higher of the two section 34 rates for the period, and that surcharge is worked out day by day, which section 34 does not specify:

1. Annual surcharge on the amount: Rs. 1,800,000 x 12% = Rs. 216,000.
2. For 73 days, one fifth of a 365-day year: Rs. 216,000 / 5 = Rs. 43,200.

Default surcharge of Rs. 43,200 is payable in addition to the Rs. 1,800,000.

What if the company stays unregistered?

Three things follow from the Act. Section 3(1A) charges further tax at four percent of value on taxable supplies made to a person who has not obtained a registration number or is not an active taxpayer, so its suppliers must charge it more. The definition of “registered person” in section 2 says a person liable to be registered but not registered is not entitled to any benefit available to a registered person under the Act or the rules. And the provisions printed with section 14 in this edition let the Board direct disconnection of gas and electricity, and let the Commissioner suspend and then bar bank accounts after three consecutive opportunities to register. The bank account power takes effect only from a date the Board notifies.

Common mistakes

• Treating the NTN as sales tax registration. Section 181 of the Ordinance and section 14 of the Act are separate registrations.
• Assuming a small company is a cottage industry. All four conditions in section 2(5AB) must be met.
• Confusing the return with the surcharge clock. Section 26 fixes when the return is due; section 34(2)(b) sets its own start date for default surcharge on unpaid tax.
• Assuming services are covered here. Provincial sales tax on services is outside this corpus.

What to check in the official text

Read section 14 with its sub-sections, section 2 clauses (5AB), (9) and (43), section 26 and section 34. The registration procedure, payment date and return form are in the Sales Tax Rules, 2006 and Board notifications, which should be checked for the current tax period.