Why is sales tax on some imported goods charged on the retail price instead of the customs value?

What does the law say?

The ordinary rule in section 3(1)(b) of the Sales Tax Act, 1990 is 18% of the value of goods imported into Pakistan, and section 2(46)(d) sets that value as the customs value plus customs duties and federal excise duty. That definition expressly excludes goods specified in the Third Schedule.

For those goods, section 3(2)(a) applies instead. Taxable supplies “and import of goods specified in the Third Schedule” are charged at 18% of the retail price. The retail price, together with the amount of sales tax, must be “legibly, prominently and indelibly printed or embossed by the manufacturer, or the importer, in case of imported goods” on each article, packet, container, package, cover or label.

So the tax is fixed at import on the price the consumer will pay, rather than on the landed cost.

What counts as the retail price?

Section 2(27) defines “retail price”, with reference to the Third Schedule, as the price fixed by the manufacturer “or importer, in case of imported goods”, inclusive of all duties, charges and taxes other than sales tax, at which the brand or variety is sold to the general body of consumers. Where more than one price is fixed for the same brand or variety, the highest one counts.

Four provisos follow:

1. the Board may by general order specify zones or areas for determining the highest retail price;
2. for aerated water, beverages, mineral water or fruit juices, any reduction for chilling or similar charges cannot exceed 5% of the price;
3. the Board may, where it deems necessary, fix the retail price of Third Schedule goods by notification;
4. for imported Third Schedule goods, the retail price “shall not be less than one hundred thirty percent” of the customs value under section 25 of the Customs Act, including customs duties and federal excise duty.

The fourth proviso is the one that matters most to importers. It sets a floor, so declaring a low retail price does not reduce the tax below 18% of 130% of the duty-paid value.

Which imported goods are in the Third Schedule?

The Third Schedule, as amended to 30 June 2026, lists goods by description and PCT heading. Examples relevant to importers include fruit juices, ice cream, aerated waters, cigarettes, toilet soap, detergents, shampoo, toothpaste, perfumery and cosmetics, tea, powder drinks, spices in branded retail packing, household electrical goods such as air conditioners, refrigerators and televisions, household gas appliances, paints in retail packing, lubricating oils in retail packing, tyres and batteries not sold to vehicle makers, motorcycles, tiles, auto-parts in retail packing, and specifically “import of” pet food, coffee, chocolates and cereal bars sold in retail packing.

The Finance Act, 2026 added serial numbers 56 to 75, including fats and oils, confectionery, pasta, sauces, plastic household articles, bags and cases, footwear (with an exception for certain retail-integrated manufacturers), sanitaryware, crockery, car accessories, milk products, hair and toilet preparations, tissue paper, jams, utensils and ceramic sanitary products, each “sold in retail packing” or “put up for retail sale”.

A note at the end of the Schedule says that where the Federal Government has notified a rate higher than 18% for any of these goods, that rate continues after inclusion. Section 3(2)(a) also points to the Eighth Schedule where a Third Schedule item appears there too.

Worked example (illustrative figures)

Hassan Imports, Karachi, brings in 5,000 bars of branded chocolate in retail packing, which is serial 54 of the Third Schedule. The customs duty amount is invented, since the tariff is not in this corpus.

1. Customs value under section 25: Rs. 1,000,000. Customs duties assessed: Rs. 300,000 (illustrative). Duty-paid value: Rs. 1,300,000.
2. Floor under the proviso to section 2(27): Rs. 1,300,000 x 130% = Rs. 1,690,000.
3. Hassan fixes a retail price of Rs. 400 per bar, excluding sales tax. Total retail price: 5,000 x Rs. 400 = Rs. 2,000,000, which is above the floor.
4. Sales tax at import: Rs. 2,000,000 x 18% = Rs. 360,000. The printed price is Rs. 400 + Rs. 72 sales tax = Rs. 472 per bar.
5. For comparison, 18% on the duty-paid value would have been Rs. 1,300,000 x 18% = Rs. 234,000.
6. No 3% value addition tax, because paragraph (2)(ix) of the Twelfth Schedule excludes these goods.
7. Section 148 income tax: value under section 148(9)(a) is Rs. 2,000,000 + Rs. 360,000 = Rs. 2,360,000. Chocolate is not listed in Parts I or II of the Twelfth Schedule to the Ordinance, so as a commercial importer the rate is 6%: Rs. 141,600.

What if the importer fixes a price below the floor?

If Hassan fixed Rs. 300 per bar, the total would be Rs. 1,500,000, which is less than the floor of Rs. 1,690,000. The proviso says the retail price “shall not be less than” the floor, so tax would be Rs. 1,690,000 x 18% = Rs. 304,200.

Common mistakes

• Assuming customs value always applies. Section 2(46)(d) carves out Third Schedule goods.
• Printing a price without the sales tax amount. Section 3(2)(a) requires both on each article or pack.
• Forgetting the 130% floor. It applies only to imported goods, and it is measured on the duty-paid value.

What to check in the official text

Read section 2(27), section 3(2)(a) and the full Third Schedule in the official PDF of the Sales Tax Act, as the Schedule’s PCT headings do not survive well in the site copy. Check for Board notifications fixing retail prices or zones and Federal Government notifications setting higher rates; those are outside this corpus.