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Cottage industry definition for exemption from sales tax registration
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Cottage industry annual turnover limit proposed to change

Which persons required to get sales tax registration ?

Registration Section 14 of Sales Tax Act 1990

According to Registration provisions under Section 14(1) of Sales Tax Act, 1990, Every person engaged in making taxable supplies in Pakistan, including zero-rated supplies, in the course or furtherance of any taxable activity carried on by him, falling in any of the following categories, if not already registered, is required to be registered under this Act, namely:-

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(a) a manufacturer who is not running a cottage industry;
(b) a retailer who is liable to pay sales tax under the Act or rules made thereunder, excluding such retailer required to pay sales tax through his electricity bill under sub-section (9) of section 3;
(c) an importer;
(d) an exporter who intends to obtain sales tax refund against his zero-rated supplies;
(e) a wholesaler, dealer or distributor; and
(f) a person who is required, under any other Federal law or Provincial law, to be registered for the purpose of any duty or tax collected or paid as if it were a levy of sales tax to be collected under the Act.

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(2) Persons not engaged in making of taxable supplies in Pakistan, if required to be registered for making imports or exports, or under any provisions of the Act, or any other Federal law, may apply for registration.

(3) The registration under this Act shall be regulated in such manner as the Board may, by notification in the official Gazette, prescribe.

Which conditions required to be fulfilled by cottage industry ?

“Cottage industry” means – Section 2(5AB) of Sales Tax Act 1990.

(a) does not have an industrial gas or electricity connection;
(b) is located in a residential area;
(c) does not have a total labour force of more than ten workers; and
(d) annual turnover from all supplies does not exceed Ten (10) million rupees.

Proposed change in limit of turnover of cottage industry in Supplementary Bill 2021

Cottage industry is exempt from sales tax. The term “cottage industry” has been defined to mean a manufacturing concern, which fulfils each of the following conditions, namely:

(a) does not have an industrial gas or electricity connection;
(b) is located in a residential area;
(c) does not have a total labour force of more than ten workers; and
(d) annual turnover from all supplies does not exceed Rs 10 million rupees

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Though the supplementary Bill 2021, the limit of annual turnover, specified in (d) above, has been reduced from Rs 10 million to Rs 8 million.

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