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Sales tax zero rated Supplies in Pakistan

Zero rating Supplies Section (4) of sales tax act 1990 – the following goods shall be charged to tax at the rate of zero per cent:–

(a) goods exported, or the goods specified in the Fifth Schedule;

Goods of Fifth Schedule of Sales Tax Act 1990

1- (i) Supply, repair or maintenance of any ship which is neither;
(a) a ship of gross tonnage of less than 15 LDT; nor
(b) a ship designed or adapted for use for recreation or pleasure.

(ii) Supply, repair or maintenance of any aircraft which is neither;
(a) an aircraft of weight-less than 8000 kilograms; nor
(b) an aircraft designed or adapted for use for recreation or pleasure.

(iii) Supply of spare parts and equipment for ships and aircraft falling under (i) and (ii) above.
(iv) Supply of equipment and machinery for pilot age, salvage or towage services.
(v) Supply of equipment and machinery for air navigation services.
(vi) Supply of equipment and machinery for other services provided for the handling of ships or aircraft in a port or Customs Airport.

2- Supply to diplomats, diplomatic missions, privileged persons and privileged organizations which are covered under various Acts, Orders, Rules, Regulations and Agreements passed by the Parliament or issued or agreed by the Government of Pakistan.

3- Supplies to duty free shops, provided that in case of clearance from duty free shops against various baggage rules issued under the Customs Act, 1969, (IV of 1969), the supplies from duty free shops shall be treated as import for the purpose of levy of sales tax.

5- Supplies of raw materials [, components and goods for further] manufacture of goods in the Export Processing Zones.

6- Supplies of such locally manufactured plant and machinery to petroleum and gas sector Exploration and Production companies, their contractors and sub-contractors] as may be specified by the Federal Government, by notification in the official Gazette, subject to such conditions and restrictions as may be specified in such notification.

6A- Supplies of locally manufactured plant and machinery of the following specifications, to manufacturers in the Export Processing Zone, subject to the conditions, restrictions and procedure given below, namely:-
(i) Plant and machinery, operated by power of any description, as is used for the manufacture or production of goods by that manufacturer;
(ii) Apparatus, appliances and equipments specifically meant or adapted for use in conjunction with the machinery specified in clause (i);
(iii) Mechanical and electrical control and transmission gear, meant or adapted for use in conjunction with machinery specified in clause (i); and
(iv) Parts of machinery as specified in clauses (i), (ii) and (iii), identifiable for use in or with such machinery.
Conditions, restrictions and procedures:-
(a) the supplier of the machinery is registered under the Act;
(b) proper bill of export is filed showing registration number;
(c) the purchaser of the machinery is an established manufacturer located in the Export Processing Zone and holds a certificate from the Export Processing Zone Authority to that effect;

(d) the purchaser submits an indemnity bond in proper form to the satisfaction of the concerned Commissioner Inland Revenue that the machinery shall, without prior permission from the said Commissioner, not be sold, transferred or otherwise moved out of the Export Processing Zone before a period of five years from the date of entry into the Zone;
(e) if the machinery is brought to tariff area of Pakistan, sales tax shall be charged on the value assessed on the bill of entry; and
(f) breach of any of the conditions specified herein shall attract legal action under the relevant provisions of the Act, besides recovery of the amount of sales tax along with default surcharge and penalties involved.

Difference Between Zero Rated And Exempt Supplies In Pakistan

Difference Between Exempt and Zero Rated Supplies

“exempt supply” means a supply which is exempt from tax under section 13.

Exemption.Section (13)– (1) Notwithstanding the provisions of section 3, supply of goods or import of goods specified in the Sixth Schedule shall, subject to such conditions as may be specified by the 4[Federal Government], be exempt from tax under this Act

“zero-rated supply” means a taxable supply which is charged to tax at the rate of zero per cent under section 4.

7- Supplies made to exporters under the Duty and Tax Remission Rules, 2001 subject to the observance of procedures, restrictions and conditions prescribed therein.

8- Imports or supplies made to Gawadar Special Economic Zone, excluding vehicles falling under heading 87.02 of the Pakistan Customs Tariff, subject to such conditions, limitations and restrictions as the 3[Board] may impose.

9- Goods exempted under section 13, if exported by a manufacturer.

10- Petroleum Crude Oil (PCT heading 2709.0000).

11- Raw materials, components, sub-components and parts, if imported or purchased locally for use in the manufacturing of such plants and machinery as is chargeable to sales tax at the rate of zero percent, subject to the condition that the importer or purchaser of such goods holds a valid sales tax registration showing his registration category as “manufacturer”; and in case of import , all the conditions, restrictions, limitations and procedures as are imposed by notification under section 19 of the Customs Act,1969(IV of 1969), shall apply.

12- The following goods and the raw materials, packing materials, sub-components, components, sub-assemblies and assemblies imported or purchased locally for the manufacture of the said goods, subject to the conditions, limitations and restrictions as 1[prescribed by the Board]

(xvii) 4[Preparations suitable for infants, put up for retail sale] (PCT Heading 1901.1000)

(xix) Bicycles (PCT heading 87.12).
(xx) 2[Colors in sets (PCT heading 3213.1000).
(xxi) Writing, drawing and marking inks (PCT heading. 3215.9010 and 3215.9090)
(xxii) Erasers (PCT heading 4016.9210 and 4016.9290)
(xxiii) Exercise books (PCT heading 4820.2000)
(xxiv) Pencil sharpeners (PCT heading 8214.1000)
(xxv) Geometry boxes (PCT heading 9017.2000)
(xxvi) Pens, ball pens, markers and porous tipped pens (PCT heading 96.08)
(xxvii) Pencils including color pencils (PCT heading 96.09)”.

13- Supplies of raw materials, components and goods for further manufacture of goods in the Gwadar Free Zone and export thereof, provided that in case of supply to tariff area of Pakistan, tax shall be charged on the value assessed on the Goods Declaration for import.

14- Supplies of locally manufactured plant and machinery of the following specifications, to manufacturers in the Gwadar Free Zone, subject to the conditions, restrictions and procedure given below, namely:−
(i) plant and machinery, operated by power of any description, as is used for the manufacture or production of goods by that manufacturer.
(ii) apparatus, appliances and equipment specifically meant or adapted for use in conjunction with the machinery specified in clause (i).
(iii) mechanical and electrical control and transmission gear, meant or adapted for use in conjunction with machinery specified in clause (i).

(iv) parts of machinery as specified in clauses (i), (ii) and (iii), identifiable for use in or with such machinery.
Conditions, restrictions and procedures:−
(a) the supplier of the machinery is registered under the Act;
(b) proper bill of export is filed showing registration number;
(c) the purchaser of the machinery is an established manufacturer located in the Gwadar Free Zone and holds a certificate from the Gwadar Port Authority to that effect;
(d) the purchaser submits an indemnity bond in proper form to the satisfaction of the concerned Commissioner Inland Revenue that the machinery shall, without prior permission from the said Commissioner, not be sold, transferred or otherwise moved out of the Gwadar Free Zone before a period of five years from the date of entry into the Zone;
(e) if the machinery is brought to tariff area of Pakistan outside Gwadar Free Zone, sales tax shall be charged on the value assessed on the Goods Declaration for import; and
(f) breach of any of the conditions specified herein shall attract legal action under the relevant provisions of the Act. Besides recovery of the amount of sales tax along with default surcharge and penalties involved.]


(b) supply of stores and provisions for consumption aboard a conveyance proceeding to a destination outside Pakistan as specified in section 24 of the Customs Act, 1969 (IV of 1969);


(c) such other goods, as the Federal Government may specify by notification in the official Gazette. Whenever circumstances exist to take immediate action for the purposes of national security, natural disaster, national food security in emergency situations and implementation of bilateral and multilateral agreements:”;

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