Are exports zero-rated for sales tax, and how does an exporter get a refund of input tax?

What does the law say?

Section 4 of the Sales Tax Act, 1990 is headed “Zero rating”. It says that “the following goods shall be charged to tax at the rate of zero per cent”, and clause (a) is “goods exported, or the goods specified in the Fifth Schedule”. An export is therefore a taxable supply, but the tax charged on it is nil.

Zero rating is not the same as exemption. Because the export is still a taxable supply, the exporter can claim the input tax paid on purchases and imports used for it. Since there is little or no output tax to set that input tax against, the exporter usually ends up with excess input tax, and section 10 deals with getting it back.

When does zero rating not apply?

The proviso to section 4 switches zero rating off for a supply of goods that:

1. are exported but have been, or are intended to be, re-imported into Pakistan;
2. have been entered for export under the Customs Act but are not exported; or
3. have been exported to a country specified by the Federal Government by notification.

A further proviso lets the Federal Government, by notification, restrict the amount of input tax credit a person making zero-rated supplies can claim.

How is the refund worked out?

Section 10(1) says that if the input tax paid on taxable purchases in a tax period “exceeds the output tax on account of zero rated local supplies or export made during that tax period, the excess amount of input tax shall be refunded”. The refund is due “not later than forty-five days of filing of refund claim”, in the manner and on the conditions the Board notifies.

Three limits apply before any money is paid:

• Section 8 disallowances. Section 8(1) bars input tax on, among other things, goods or services not used for taxable supplies, fake invoices, purchases flagged by CREST or not verifiable in the supply chain, goods where the supplier did not deposit the tax, personal consumption, building materials and fittings, and vehicles, furniture and office equipment not bought for resale.
• Consumption test. Rule 33 of the Sales Tax Rules pays refund on zero-rated supplies only “to the extent of input tax paid on purchases or imports that are actually consumed in such goods as supplied”. Rule 39C caps the refund at the lower of that amount and any ceiling the Board sets.
• Set-off of dues. Section 10(2) says the refund is made after adjusting any unpaid tax, default surcharge or penalty under any law the Board administers.

A second proviso to section 10(1) also lets the Board direct that refunds against exports be paid at fixed rates notified by it.

How is the claim filed and paid?

Chapter V-A of the Sales Tax Rules, “Refund to exporters”, applies under rule 39B to refund claims filed from 1 October 2024 onwards by all exporters on account of export of goods.

• Filing (rule 39D). The monthly return is the claim. The amount in column 29 of the return in form STR-7 is the amount claimed. The return may be filed without Annex-H, and Annex-H filed separately within 120 days, or 180 days for commercial exporters. The Commissioner can extend this by up to 60 days. The date Annex-H is submitted is the date of filing the refund claim.
• Processing (rules 39E and 39F). The risk management system routes the claim. Claims in the FASTER module are processed electronically, and a refund payment order is sent to the State Bank within seventy-two hours of submission. For a commercial exporter, payment follows realisation of the export proceeds.
• Checks (section 10(3)). Where input tax or refund appears inadmissible, proceedings must be completed within sixty days, extendable to one hundred and twenty days by an Additional Commissioner, and by the Board to no more than nine months.

Worked example (illustrative figures)

A garment exporter in Karachi files its return for one tax period. All amounts are invented.

1. Exports in the period: zero-rated under section 4(a), so output tax on them is nil.
2. Output tax on a small volume of local sales: Rs. 300,000.
3. Input tax on invoices for the period: Rs. 1,500,000, of which Rs. 100,000 was paid on a car for the office.
4. Section 8(1)(i) disallows input tax on vehicles in Chapter 87 not bought for resale: Rs. 1,500,000 - Rs. 100,000 = Rs. 1,400,000 admissible.
5. Excess input tax: Rs. 1,400,000 - Rs. 300,000 = Rs. 1,100,000, subject to the consumption test in rule 33 and any ceiling under rule 39C.
6. The exporter files Annex-H on 10 August. Forty-five days from that date: 21 days remain in August, and 24 more days take the deadline to 24 September.

Common mistakes

• Calling exports exempt. Section 4 charges them at zero per cent, which is what preserves the right to input tax.
• Counting 45 days from the return date. Where Annex-H is filed later, rule 39D treats its date as the claim date.
• Claiming every input. Section 8 and rule 33 remove inputs that are barred or not consumed in the exports.
• Assuming a commercial exporter is paid at once. Rule 39F links payment to realisation of export proceeds.

What to check in the official text

Read sections 4, 8 and 10 of the Sales Tax Act as amended to 30 June 2026, and section 67 on compensation for late refunds. The Sales Tax Rules held here run to 30 June 2025, so check for later changes to Chapter V-A. Any Board notification setting fixed refund rates or a ceiling under rule 39C is not in this corpus.