Is sales tax charged when a mill imports new machinery, and can it be claimed back?

A mill importing ring frames, air-jet looms or a stenter pays sales tax at import like any other importer, unless an exemption entry fits. For a registered mill that tax is not a final cost: it is input tax, and the 90 percent cap that squeezes monthly input tax does not apply to it.

What does the law say?

The charge. Section 3(1) levies sales tax at eighteen per cent of the value of taxable supplies and, under clause (b), of goods imported into Pakistan, irrespective of their final destination in Pakistan. Machinery is not treated differently from other goods unless a schedule says so. Section 3(3)(b) puts the liability to pay on the person importing the goods.

The exemption that used to exist. Table-3 of the Sixth Schedule exempts plant, machinery, equipment and apparatus listed in its Annexure. Serial numbers 1 to 9, 11, 13 to 15B and 17 of that Annexure were omitted by the Finance (Supplementary) Act, 2022. The entries left in the 30 June 2026 text cover:

Serial	What it covers
12	Machinery for hotels, power, water treatment and infrastructure projects within 30 km of the zero point in Gwadar
18	Parts for assembling computers and laptops
19	Plant and machinery for Special Economic Zones, by zone developers and zone enterprises, on one time basis
20	Plant and machinery for electric vehicle assembly or manufacture
22	Machinery for certain power generation projects with implementation agreements signed before 15 January 2022
23	Machinery for upgrading existing refineries
24	Imports by Karachi Shipyard and Engineering Works Limited

None of these is a textile entry. A mill outside those zones and projects has no Table-3 route.

Claiming it back. Section 7(1) lets a registered person deduct input tax from output tax. For imports, section 7(2)(ii) requires the person to hold a bill of entry or goods declaration “in his name and showing his sales tax registration number”, cleared by customs.

The 90 percent cap. Section 8B(1) normally stops a registered person adjusting input tax above 90 percent of output tax in a tax period. Its first proviso says this restriction “shall not apply in case of fixed assets or Capital goods”.

How does it work in practice?

• At the port: the mill pays 18 percent sales tax on the import value, along with customs duty. Customs duty rates are in the Customs Tariff, which is not in this corpus.
• Value addition tax: the Twelfth Schedule normally adds a 3 percent value addition tax at import. Clause (x) of paragraph (2) of its procedure excludes “plant, machinery and equipment falling in Chapters 84 and 85” imported by a manufacturer “for in-house installation or use”.
• In the monthly return: the sales tax paid at import is claimed as input tax, shown as capital goods, and is not squeezed by the 90 percent limit.
• EFS users: serial 162 of Table-1 of the Sixth Schedule exempts import of plant and machinery by registered persons authorized under the Export Facilitation Scheme, 2021, on Board conditions. Rule 881 of the Customs Rules lets an authorized user acquire plant, machinery and spares with the Regulatory Collector’s authorization.

Worked example (illustrative figures)

A registered spinning mill in Multan, not under EFS, imports new ring frames in October.

1. Value of the ring frames for sales tax at import: Rs. 60,000,000.
2. Sales tax at 18%: 18% x Rs. 60,000,000 = Rs. 10,800,000, paid at import under section 3(1)(b).
3. Value addition tax: nil, if the frames fall in Chapter 84 and are for in-house installation (Twelfth Schedule, paragraph (2)(x)).
4. October output tax on yarn sales: Rs. 9,000,000. Other input tax (cotton, electricity, gas): Rs. 8,500,000.
5. The 90% cap applies to the ordinary input tax: 90% x Rs. 9,000,000 = Rs. 8,100,000.
6. The Rs. 10,800,000 on the ring frames is capital goods input tax, which the first proviso to section 8B(1) keeps outside that cap.

The Act does not set out the exact order in which capital goods input tax and other input tax are combined in the return; the return form in the Sales Tax Rules does that.

What if …?

What if the mill is in a Special Economic Zone? Serial 19 of the Table-3 Annexure exempts plant and machinery (except Chapter 87 items) imported for setting up a Special Economic Zone and installed by zone enterprises, on one time basis, as prescribed in the SEZ Act, 2012.

What if the mill is an EFS user and sells the machinery after two years? Rule 881(2) requires plant, machinery and equipment to be kept for five years. Disposal before three full years pays full duty and taxes leviable at import, then 75 percent between three and four years, 50 percent between four and five years, and nil after five years. Spares have a two year retention period.

What if the mill is not registered for sales tax? Section 7 input tax is only available to a registered person, so the import tax stays a cost.

Common mistakes

• Relying on an old Table-3 entry. The general entries were omitted in 2022. Check the current Annexure.
• Applying the 90 percent cap to machinery. Section 8B(1) excludes fixed assets and capital goods.
• Importing in someone else’s name. Section 7(2)(ii) needs the goods declaration in the claimant’s own name with its registration number.

What to check in the official text

Read sections 3, 7 and 8B of the Sales Tax Act, Table-3 and Table-1 (serial 162) of the Sixth Schedule, and paragraph (2)(x) of the Twelfth Schedule. EFS users should also read rule 881 of the Customs Rules. Customs duty rates, Board conditions for serial 162 and any SROs on machinery are not held in this corpus.