Are bun, rusk, sheer mal and vermicelli sold by a bakery taxed at the reduced 10% rate?

The reduced 10% rate for bun, rusk, sheer mal and vermicelli is real, but it stops at the door of a Tier-1 bakery or sweet shop. When these items are sold in a Tier-1 outlet, the Eighth Schedule entry does not apply, and the outlet charges the rate that section 3(9A) of the Sales Tax Act, 1990 points to.

What does the law say?

Section 3(2)(aa) of the Sales Tax Act says goods specified in the Eighth Schedule are charged at the rates and subject to the conditions set out there. Serial 87 of Table-1 of the Eighth Schedule, inserted by the Finance Act, 2024, reads (spelling as printed in the official text):

Serial	Description	Rate
87	Local supply of vermicillies, sheer mal, bun and rusk excluding those sold in bakeries, and sweet shops falling in the category of Tier-1 retailers.	10%

So the entry has two parts. It gives a 10% rate for local supply of the four items, and it carves out the same items when sold in Tier-1 bakeries and sweet shops.

What rate applies once the 10% entry is excluded?

Section 3(9A) says Tier-1 retailers “shall pay sales tax at the rate as applicable to the goods sold” under the Act or a notification. Once serial 87 excludes the item, no other Eighth Schedule entry for bun or rusk was found in the Act, so the general rate in section 3(1) applies. Section 3(1) sets that rate at eighteen per cent of the value of the supply.

Whether an outlet is Tier-1 depends on clause (43A) of section 2. As amended to 30 June 2026, an outlet is Tier-1 if it meets any one limb, for example being a unit of a national or international chain, operating in an air-conditioned mall or plaza (not a kiosk), or having cumulative electricity bills above Rs. 1,200,000 in the preceding twelve consecutive months.

How does it work in practice?

Who is selling	Rate on bun, rusk, sheer mal, vermicelli
A registered maker supplying these items locally, for example to kiryana stores	10% under serial 87
A Tier-1 bakery or sweet shop selling them over the counter	Excluded from serial 87, so 18% under section 3(1) read with 3(9A)
A bakery or sweet shop that is not Tier-1	Pays through the monthly electricity bill under section 3(9), at 5% where the bill does not exceed Rs. 20,000 and 7.5% where it does

Value, for these calculations, means the price excluding the sales tax itself, as clause (46) of section 2 defines “value of supply”.

Worked example (illustrative figures)

Two made-up businesses in Lahore:

Noor Rusk Works, Kot Lakhpat. A registered maker supplies packets of rusk to local shops. Its sales for the month are Rs. 400,000, excluding tax.

1. Rate under serial 87: 10%.
2. Sales tax: Rs. 400,000 x 10% = Rs. 40,000.
3. Total billed: Rs. 400,000 + Rs. 40,000 = Rs. 440,000.

Gulberg Bake House, in an air-conditioned plaza. It is Tier-1 under limb (b) of section 2(43A). It sells bun and rusk worth Rs. 150,000, excluding tax, in the same month.

1. Serial 87 excludes bakeries that are Tier-1, so the 10% rate is not available.
2. Rate under section 3(1): 18%.
3. Sales tax: Rs. 150,000 x 18% = Rs. 27,000.
4. Total collected: Rs. 150,000 + Rs. 27,000 = Rs. 177,000.

Had Gulberg Bake House been able to use serial 87, the tax would have been Rs. 150,000 x 10% = Rs. 15,000. The difference is Rs. 12,000 for the month.

What if …?

What if my bakery is not Tier-1? Section 3(9) charges retailers other than Tier-1 through their monthly electricity bills. On the Act’s wording, a non-Tier-1 bakery’s federal sales tax is collected that way rather than item by item, so the choice between 10% and 18% does not arise for its counter sales.

What if I only sell plain bread? Serial 54 of Table-2 of the Sixth Schedule exempts “All types of breads, nans and chapattis” on local supply. Bun and rusk are named separately in the Eighth Schedule, and the Act does not say whether a bun is also a “bread” for serial 54. That overlap is not resolved in the text.

What if my sweet shop is Tier-1 and also sells sheer mal made by someone else? The exclusion is about where the item is sold: “those sold in bakeries, and sweet shops falling in the category of Tier-1 retailers”. It does not depend on who made the item.

Common mistakes

• Treating 10% as the bakery rate. Serial 87 excludes Tier-1 bakeries and sweet shops, which are exactly the outlets most likely to charge it.
• Reading the comma loosely. The entry says “bakeries, and sweet shops falling in the category of Tier-1 retailers”. The most natural reading applies the Tier-1 condition to both, but the comma leaves room for argument, and the Act does not clarify it.
• Forgetting the entry is recent. Serial 87 was inserted by the Finance Act, 2024. Older rate lists will not show it.

What to check in the official text

Read serial 87 of Table-1 of the Eighth Schedule in the official PDF of the Sales Tax Act as amended to 30 June 2026, together with section 3(1), 3(2)(aa), 3(9) and 3(9A), and clauses (43A) and (46) of section 2. Check serial 54 of Table-2 of the Sixth Schedule for bread. Check also whether any notification issued under section 3 changes the rate for these items. Such notifications are not held in this corpus.