Sale Tax

Question 1

Question 1:
Define sales tax and its components.

.

Answer 1

Answer:

Sales tax includes
*the tax, additional tax, or default surcharge levied under the ST Act.
*It also includes fines, penalties, or fees imposed or charged under the ST Act.
*Any other sum payable under the provisions of the ST Act or the rules is also considered sales tax.

Question 2

Question 2:
What is output tax for a registered person?

Answer 2

Answer:

1) Tax levied under the Sales Tax Act on a supply of goods made by the person.
2) Tax levied under the Federal Excise Act, 2005 in sales tax mode as a duty of excise on the manufacture of the goods or rendering of services.
3)Sales tax levied on services rendered by the person under the Islamabad Capital Territory on Services) Ordinance, 2001.

Question 3

Question 3:
Explain input tax for a registered person.

Answer 3

Answer:

1) Tax levied under the Sales Tax Act on the supply of goods to the person.
2) Tax levied under the Sales Tax Act on the import of goods by the person.
3) Tax levied under the Federal Excise Act, 200s in sales tax mode as a duty of excise on the manufacture of the goods or rendering of services.
4) Tax levied on services provided to the person under sales tax laws of provinces including Islamabad.
5)Tax levied under the Sales Tax Act as adopted in the State of Azad Jammu and Kashmir on the supply of goods received by the person.

Question 4

Question 4:
Define the term “person” in the context of sales tax.

Answer 4

Answer:

1)Individual.
2) Company or association of persons incorporated, formed, organized, or established in Pakistan or elsewhere.
3) Federal Government.
4) Provincial Government.
5) Local authority in Pakistan.
6) Foreign government, political subdivision of a foreign government, or public international organization.

Question 5

Question 5:
What does the term “supply” mean in sales tax?

Answer 5

Answer:

Sale or other transfer of the right to dispose of goods as an owner, including sale or transfer under a hire purchase agreement.
1)Putting to private, business, or non-business use of goods produced in the course of taxable activity for purposes other than making a taxable supply.
2) Auction or disposal of goods to satisfy a debt owed by a person.
3) Possession of taxable goods held immediately before a person ceases to be a registered person.
4) Manufacture of goods belonging to another person, the transfer of goods to the owner or a person nominated by him.
5) Production, Transmission and distribution of electricity.

Question 6

Question 6:
Give examples of supply and non-taxable activities ( not supply) under sales tax.

Answer 6

Answer:

Supply: Employees of a manufacturer take a fridge for their home consumption.
Non-taxable activity: A distributor providing a fridge to an employee under an employment package (not involved in manufacturing).

Question 7

Question 7:
Explain the concept of supply through auction or to satisfy a debt.

Answer 7

Answer:

Supply of taxable goods, through auction or otherwise, to satisfy a debt constitutes a supply.
For example, when a person’s taxable goods are disposed of to satisfy their income tax liability or when a bank disposes of taxable goods to recover a loan or interest due by a registered person.

Question 8

Question 8:
Define taxable activity under sales tax.

Answer 8

Answer:

Any economic activity carried on by a person, whether or not for profit.
Includes
1) activities carried on in the form of a business, trade, manufacture, supply of goods, or rendering services to another person,
2) and one-off adventures or concerns in the nature of trade.
3) It also includes anything done or undertaken during the commencement or termination of the economic activity.
Exclusions:
1) Activities of an employee providing services to an employer,
2) private recreational pursuits or hobbies, and
3) activities carried on by a person other than an individual that would fall within the sub-clause.

Question 9

Question 9:
What is a manufacturer or producer under sales tax?

Answer 9

Answer:

A person who engages in the production of goods, whether or not the raw materials are owned by them.
1) A Person who involve by process or operation assembling, bottling, cutting, diluting, mixing, preparing,packing and repacking of goods by any other manager.
2) It includes an assignee or trustee in bankruptcy, a liquidator, or any manufacturer who disposes of assets in any fiduciary capacity.
3) Any person who holds or uses patents, proprietary, or other rights to goods being manufactured is also considered a manufacturer.

Question 10

Question 10:
Provide examples of activities considered as manufacturing under sales tax.

Answer 10

Answer:

1) Any process in which an article is converted into another distinct article.
2) Any process in which an article is changed or reshaped to become capable of being put to use differently.
3) Any process is incidental to the completion of a manufactured product.
4) Printing, publishing, lithography, and engraving.
5) Assembling, mixing, cutting, diluting, bottling, packaging, repacking.

Question 11

Question 11:
What is a distributor under sales tax?

Answer 11

Answer:

A person appointed by a manufacturer, importer, or any other person for a specified area to purchase goods for further supply.
1) It includes a person engaged in supply as a wholesaler or retailer.
Note: A distributor must purchase the goods and then supply them. If a distributor is working on a commission basis and not purchasing goods, they are not liable for sales tax.

Question 12

Question 12:
Define a wholesaler and a retailer under sales tax

Answer 12

Answer:
Wholesaler:

A person who carries on the business of buying and selling goods by wholesale or supplying or distributing goods by wholesale.
1) It includes storing goods belonging to others as an agent for the purpose of sale.
2) It also includes a person who deducts income tax at source under the Income Tax Ordinance, 2001.
3) It includes dealer and means any person who carries on whether regularly or otherwise.
Retailer:

A person supplying goods to the general public for consumption.
1) If he combining import and retail or manufacture business with retail, the retailer must notify and advertise wholesale and retail prices separately and declare the address of retail outlets.

Question 13

1. What does the term “sales tax” encompass?
   a) The tax levied on the supply of goods
   b) Additional tax charged under the Sales Tax Act
   c) Any sum payable under the provisions of the Sales Tax Act or rules

Answer 13

Answer: All of the above (a, b, c)

Question 14

2. What does “output tax” refer to?
   a) Tax levied on the supply of goods made by a registered person
   b) Tax levied under the Federal Excise Act, 2005 in sales tax mode as a duty of excise on the
   manufacture of the goods or rendering of services
   c) Sales tax levied on services rendered by a registered person under Islamabad Capital Territory

Answer 14

Answer: All of the above (a, b, c)

Question 15

3. What is included in the definition of “input tax” for a registered person?
   a) Tax levied on the supply of goods to the person
   b) Tax levied on the import of goods by the person
   c) Tax levied on services provided to the person under sales tax laws
   d) Tax levied on the supply of goods received by the person in Azad Jammu and Kashmir

Answer 15

Answer: All of the above (a, b, c, d)

Question 16

4. Who does the term “person” refer to?
   a) Individual
   b) Company or association of persons
   c) Federal Government
   d) Provincial Government
   e) Local authority in Pakistan
   f) Foreign government, political subdivision, or public international organization

Answer 16

Answer: All of the above (a, b, c, d, e, f)

Question 17

5. What does the term “supply” include?
   a) Sale or transfer of the right to dispose of goods
   b) Putting goods to personal, business, or non-business use
   c) Auction or disposal of goods to satisfy a debt
   d) Manufacture of goods belonging to another person
   e) Production, Transmission and distribution of electricity.

Answer 17

Answer: All of the above (a, b, c, d,e)

Question 18

6. When does “putting to personal use of goods manufactured” constitute a supply?
   a) When employees of the manufacturer take goods for home consumption
   b) When a distributor provides goods to an employee under an employment package
   c) When goods manufactured are used for personal purposes

Answer 18

Answer: Option a

Question 19

7. What constitutes a “taxable activity”?
   a) Economic activity carried on by a person for profit
   b) Business, trade, or manufacturing activity
   c) Supplying goods or rendering services to another person
   d) One-off adventure or concern in the nature of a trade

Answer 19

Answer: All of the above (a, b, c, d)

Question 20

8. Who is considered a “manufacturer”?
   a) Person engaged in the production of goods
   b) Person who disposes of assets in a fiduciary capacity
   c) Person holding or using patents, proprietary or other rights to goods being manufactured

Answer 20

Answer: All of the above (a, b, c)

Question 21

9. Which of the following processes are considered “manufacture or produce”?
   a) Conversion of an article into another distinct article
   b) Changing or reshaping an article to be used differently
   c) Processes incidental to the completion of a manufactured product
   d) Printing, publishing, lithography, and engraving
   e) Assembling, mixing, cutting, diluting, packaging, and repacking

Answer 21

Answer: All of the above (a, b, c, d, e)

Question 22

10. What does a “distributor” refer to?
    a) Person appointed to purchase goods for further supply
    b) Person engaged in supplying goods as a wholesaler or retailer

Answer 22

Answer: Both a and b

Question 23

11. What distinguishes a distributor liable to sales tax from one who is not?
    a) A distributor purchases goods for further supply
    b) A distributor is working on a commission basis
    c) A distributor directly charges sales tax from customers

Answer 23

Answer: Option a

Question 24

12. How is a “wholesaler” defined?
    a) Person engaged in the business of buying and selling goods wholesale
    b) Person supplying or distributing goods by wholesale for cash, deferred payment, or commission
    c) Person storing goods belonging to others as an agent for sale
    d) Person deducting income tax at source under the Income Tax Ordinance

Answer 24

Answer: All of the above (a, b, c, d)

Question 25

13. What is the definition of a “retailer”?
    a) Person supplying goods to the general public for consumption
    b) Person combining import and retail or manufacture with retail
    c) Person who advertises wholesale and retail prices separately

Answer 25

Answer: All of the above (a, b, c)

Question 26

14. When is a “gift” considered a supply for sales tax purposes?
    a) When it involves a taxable activity
    b) When it is subject to sales tax
    c) When there is a transfer of the right to dispose of goods as owner

Answer 26

Answer: Option c

Question 27

15. Does leasing an asset constitute a supply for sales tax purposes?
    a) Yes, if the asset is transferred to the lessee upon lease termination
    b) No, unless the title of goods transfers from the lessor to the lessee
    c) No, leasing does not involve a supply

Answer 27

Answer: Option b

Question 28

16. What is the tax status of supplying food to needy individuals by a restaurant operating on a commercial basis?
    a) It constitutes a supply subject to sales tax
    b) It constitutes a supply but is not subject to sales tax
    c) It does not constitute a supply

Answer 28

Answer: Option a

Question 29

17. If a person purchases food from a hotel and provides it free of charge to needy individuals, what is the tax status?
    a) It constitutes a supply subject to sales tax
    b) It constitutes a supply but is not subject to sales tax
    c) It does not constitute a supply

Answer 29

Answer: Option b

Question 30

18. When does the auction or disposal of taxable goods to satisfy a debt constitute a supply?
    a) When a person’s taxable goods are disposed to recover tax liabilities
    b) When a bank disposes taxable goods to recover a loan or interest
    c) When the Commissioner disposes taxable goods to satisfy a debt

Answer 30

Answer: All of the above (a, b, c)

Question 31

19. Which activities are excluded from the definition of “taxable activity”?
    a) Activities of an employee providing services to an employer
    b) Individual’s private recreational pursuits or hobbies
    c) Activities carried on by non-individual persons that would be taxable if carried on by an individual

Answer 31

Answer: All of the above (a, b, c)

Question 32

20. Who is considered a manufacturer for sales tax purposes?
    a) Person engaged in the production of goods
    b) Assignee or trustee in bankruptcy or liquidator
    c) Person holding or using patents, proprietary or other rights to goods being manufactured
    d) A Person who by process or operation assembling, bottling, cutting, diluting, mixing,
    preparing, packing and repacking of goods by any other manager.

Answer 32

Answer: All of the above (a, b, c,d)

Question 33

21. Is toll manufacturing subject to sales tax?
    a) Yes, toll manufacturing is subject to sales tax
    b) No, toll manufacturing is exempt from

sales tax
c) It depends on the specific services provided in toll manufacturing

Answer 33

Answer: Option a

Question 34

22. What processes fall under the definition of “manufacture or produce”?
    a) Conversion of an article into another distinct article
    b) Changing or reshaping an article for different uses
    c) Processes incidental to the completion of a manufactured product
    d) Printing, publishing, lithography, and engraving
    e) Assembling, mixing, cutting, diluting, bottling, packaging, and repacking

Answer 34

Answer: All of the above (a, b, c, d, e)

Question 35

23. What is the role of a “distributor”?
    a) To purchase goods for further supply
    b) To supply goods as a wholesaler or retailer
    c) To act as an agent for the sale of goods belonging to others

Answer 35

Answer: All of the above (a, b, c)

Question 36

24. Is a distributor liable to sales tax if they work on a commission basis?
    a) Yes, a distributor working on a commission basis is liable to sales tax
    b) No, a distributor working on a commission basis is exempt from sales tax
    c) Sales tax is directly charged from customers in this case

Answer 36

Answer: Option b

Question 37

25. How is a “wholesaler” defined?
    a) Person engaged in buying and selling goods by wholesale
    b) Person supplying or distributing goods by wholesale for payment or consideration
    c) Person storing goods belonging to others as an agent for sale
    d) Person deducting income tax at source under the Income Tax Ordinance

Answer 37

Answer: All of the above (a, b, c, d)

Question 38

26. What is the definition of a “retailer”?
    a) Person supplying goods to the general public for consumption
    b) Person combining import and retail or manufacture with retail
    c) Person who advertises wholesale and retail prices separately

Answer 38

Answer: All of the above (a, b, c)

Question 39

27. When is a “gift” considered a supply for sales tax purposes?
    a) When it involves a taxable activity
    b) When it is subject to sales tax
    c) When there is a transfer of the right to dispose of goods as the owner

Answer 39

Answer: Option c

Question 40

28. Does leasing an asset constitute a supply for sales tax purposes?
    a) Yes, if the asset is transferred to the lessee upon lease termination
    b) No, unless the title of goods transfers from the lessor to the lessee
    c) No, leasing does not involve a supply

Answer 40

Answer: Option a

Question 41

29. What is the tax status of supplying food to needy individuals by a restaurant operating on a commercial basis?
    a) It constitutes a supply subject to sales tax
    b) It constitutes a supply but is not subject to sales tax
    c) It does not constitute a supply

Answer 41

Answer: Option a

Question 42

30. If a person purchases food from a hotel and provides it free of charge to needy individuals, what is the tax status?
    a) It constitutes a supply subject to sales tax
    b) It constitutes a supply but is not subject to sales tax
    c) It does not constitute a supply

Answer 42

Answer: Option b

Question 43

1. What is the definition of “Retail Price”?

Answer 43

Answer: The highest price fixed by the manufacturer or importer at which a particular variety of items should be sold to the general body of consumers, inclusive of all charges and taxes excluding sales tax, or the highest of such prices if more than one is fixed.

Question 44

2. Who is considered a “Registered Person”?

Answer 44

Answer: A person who is registered or liable to be registered under the Sales Tax Act. A person liable to be registered but not registered does not enjoy the benefits available to a registered person.

Question 45

3. What are the conditions for a manufacturing concern to be classified as a “cottage industry”?

Answer 45

Answer: A manufacturing concern is considered a cottage industry if it fulfills the following conditions:
- It does not have an industrial gas or electricity connection.
- It is located in a residential area.
- It does not have a total labor force of more than ten workers.
- The annual turnover from all supplies does not exceed Rs. 10 million.

Question 46

4. What is the formula for the “Tax Fraction”?

Answer 46

Answer: Tax Fraction formula is:
% of tax x value
% of tax + 100
It is used to calculate the amount of tax when the sales tax is not separately charged on an invoice.

Question 47

5. What is the definition of “Tax Fraud”?

Answer 47

Answer
- Tax Fraud refers to knowingly, dishonestly, or fraudulently performing acts or omissions to contravene the law with the intention of:
- Understating tax liability for two consecutive tax periods.
- Overstating tax credit or refund to cause a loss of Government revenue.
- Making taxable supply without getting registration.
- Falsifying the sales tax invoices.
- Examples of Tax Fraud include:
- Deliberately manipulating records to understate taxable sales or inflate deductions, resulting in lower tax liability than the actual amount.
- Creating fake invoices or altering genuine invoices to claim false deductions or evade taxes.
- Fabricating expenses or transactions to fraudulently claim higher tax credits or refunds.
- Engaging in taxable activities without obtaining the required registration to avoid compliance with sales tax obligations.
- Colluding with others to engage in fraudulent schemes aimed at evading sales tax payments.
- Providing false information or withholding relevant information during tax audits or investigations to mislead the tax authorities and avoid detection of fraudulent activities.
- Engaging in identity theft or using fraudulent means to obtain and misuse someone else’s taxpayer identification number for fraudulent sales tax-related activities.
- Participating in organized tax evasion schemes or conspiring with others to fraudulently evade sales tax obligations.

Question 48

6. What is the “Tax Period”?

Answer 48

Answer: The Tax Period is the period specified by the FBR (Federal Board of Revenue), usually one month, during which sales tax transactions are accounted for.

Question 49

7. What is the “Due Date” in relation to the furnishing of a return?

Answer 49

Answer: The Due Date refers to the 15th day of the month following the end of the tax period, as specified by the Board. The Board may specify different dates for furnishing different parts or annexures of the return.

Question 50

8. What does “Provincial Sales Tax” mean?

Answer 50

Answer: Provincial Sales Tax refers to the tax levied under provincial laws or laws relating to Islamabad Capital Territory, as declared by the Federal Government through a notification in the official Gazette, for the purpose of input tax.

Question 51

9. What is the definition of an “E-intermediary”?

Answer 51

Answer: An E-intermediary is a person appointed under section 52A for filing electronic returns and other prescribed documents on behalf of a registered person.

Question 52

10. When does the “Time of Supply” occur for goods and services?

Answer 52

Answer:
- For the supply of goods (other than under a hire purchase agreement), the Time of Supply is the time at which the goods are delivered or made available to the recipient of the supply.
- For hire purchase agreements, the Time of Supply is the time at which the agreement is entered into.
- For the rendering of services, the Time of Supply is the time at which the services are rendered or provided.

Question 53

1. What is the definition of “Value of Supply”?

Answer 53

Answer: The value of supply is the consideration in money received by the supplier for a taxable supply, inclusive of all federal and provincial duties, excluding sales tax.

Question 54

2. What is the definition of “Trade Discount”?

Answer 54

Answer: A trade discount is a discount offered by the supplier on the regular selling price of goods or services, provided that the tax invoice shows the discounted price and the discount is in conformity with normal business practices.

Question 55

3. What is the meaning of “Tax Period”?

Answer 55

Answer: The tax period refers to the specific period of time, usually one month, during which sales tax transactions are accounted for and reported to the relevant tax authorities.

Question 56

4. What does “Associates (Associated Persons)” refer to?

Answer 56

Answer: Associates or associated persons are individuals or entities that have a relationship where one may reasonably be expected to act in accordance with the intentions of the other, or both may reasonably be expected to act in accordance with the intentions of a third person.

Question 57

5. What is the definition of a “Tax Invoice”?

Answer 57

Answer: A tax invoice is a document issued by a registered person that includes specific particulars such as the name, address, and registration number of the supplier and recipient, quantity and description of goods, value inclusive and exclusive of tax, and the amount of sales tax charged.

Question 58

1. Explain the concept of “Value of Supply” in different situations.

Answer 58

• In a normal case, the value of supply is the consideration in money received by the supplier for the taxable supply, inclusive of federal and provincial duties, excluding sales tax.
  
  • In the case of a special nature of transaction where it is difficult to ascertain the value, the open market price is considered.
  • For imported goods (excluding 3rd Schedule items), the value is determined under the Customs Act, including customs and excise duties levied on the goods.
  • Trade discounts are excluded from the value of supply if the tax invoice shows the discounted price and the discount is in conformity with normal business practices.
  • If there is a reason to believe that the value is under-declared in the tax invoice, the value can be determined by the Valuation Committee comprising representatives of trade and the sales tax department.

Question 59

2. Discuss the requirements for a valid “Tax Invoice.”

Answer 59

• A tax invoice must be serially numbered without any gaps.
  
  • It should include the name, address, and registration number of the supplier.
  • The name, address, and registration number of the recipient should be mentioned, except for supplies made to ordinary consumers by retailers where the transaction value including sales tax does not exceed Rs. 100,000.
  • The date of issue, quantity and description of goods, value exclusive of tax, amount of sales tax, and value inclusive of tax must be specified.
  • If the NIC provided by the purchaser is later proved incorrect, no tax or penalty shall apply to the seller in case of a good-faith sale.
  • Only one tax invoice should be issued for a taxable supply.

Question 60

3. Explain the concept of “Time of Supply” for different scenarios.

Answer 60

• For the supply of goods (except under hire purchase agreements), the time of supply is when the goods are delivered or made available to the recipient.
  
  • For hire purchase agreements, the time of supply is when the agreement is entered into.
  • For the rendering of services, the time of supply is when the services are rendered or provided.

Question 61

4. Define “Associates” or “Associated Persons” and provide examples.

Answer 61

• Associates or associated persons are individuals or entities that have a relationship where one may reasonably be expected to act in accordance with the intentions of the other or both may reasonably be expected to act in accordance with the intentions of a third person.
  
  • Examples of associates include relatives of an individual, members of an association of persons, a shareholder and a company, and two companies with common control.

Question 62

2. How is trade discount treated when determining the value of supply?

Answer 62

Answer: Trade discounts are excluded from the value of supply, provided that the tax invoice shows the discounted price and the discount is in conformity with normal business practices.

Question 63

3. What are associates or associated persons?

Answer 63

Answer: Associates or associated persons are individuals or entities who have a relationship where one may reasonably be expected to act in accordance with the intentions of the other or both may reasonably be expected to act in accordance with the intentions of a third person.

Question 64

1. Explain the determination of the value of supply in different situations:

Answer 64

• The value of supply is the consideration in money received by the supplier for a taxable supply, including all federal and provincial duties, but excluding sales tax.
  
  • In a normal case, the value of supply is the consideration received for the supply, inclusive of duties but exclusive of sales tax.
  • In the case of consideration partly or fully in kind, the open market price of the supply is considered.
  • For the sale of taxable goods subject to retail tax, the value of supply is the price of the goods, excluding the amount of retail tax.
  • In the case of imported goods (excluding 3rd Schedule items), the value is determined under the Customs Act, including custom and excise duty levied on the goods.
  • Trade discounts are excluded from the value of supply, provided they are in accordance with normal business practices and are reflected in the tax invoice.

Question 65

2. Discuss the concept of “Associates” or “Associated Persons” and provide examples.

Answer 65

• Normal case: The value of supply is the consideration in money received by the supplier, including all Federal and Provincial duties, but excluding sales tax.
  
  • Consideration is partly or fully in kind: The value of supply is based on the open market price of the supply, excluding sales tax. The open market price refers to the price at which the supply could be obtained in an open market between unrelated parties.
  • Sale is made on an installment basis with a markup or surcharge: The value of supply is based on the open market price, excluding sales tax. The markup or surcharge included in credit sales or installment sales is not subject to sales tax.
  • Supply between associated persons: The value of supply is determined as the higher of either the value in the normal case (consideration in money including all duties, excluding sales tax) or the open market price (excluding sales tax).
  • Taxable supply with reference to retail tax: The value of supply is the price of taxable goods excluding the amount of retail tax that the supplier will charge at the time of making the taxable supply, or such other price as determined by the Board.
  • Imported goods (excluding 3rd Schedule items): The value of supply is determined under the Customs Act, including customs and excise duty levied on the goods.
  • Trade discounts and under-declared value: In cases of trade discounts or when there is reason to believe that the value is under-declared in the tax invoice, the value of supply is determined based on the discounted price (excluding tax) as shown in the tax invoice, conforming to normal business practices. If necessary, the valuation committee comprising representatives of trade and the sales tax department determines the value.

Question 66

1. What is the value of supply in the normal case?

Answer 66

Answer: In the normal case, the value of supply is the consideration in money received by the supplier for the supply, including all Federal and Provincial duties, but excluding sales tax.

Question 67

2. How is the value of supply determined when the consideration is partly or fully in kind?

Answer 67

Answer: When the consideration is partly or fully in kind, the value of supply is based on the open market price of the supply, excluding sales tax. The open market price is the price at which the supply could be obtained in an open market between unrelated parties.

Question 68

3. How is the value of supply calculated when a sale is made on an installment basis with a markup or surcharge included in the price?

Answer 68

Answer: In such cases, the value of supply is based on the open market price, excluding sales tax. This means that the markup or surcharge included in credit sales or installment sales is not subject to sales tax.

Question 69

1. How is the value of supply determined for imported goods, excluding 3rd Schedule items?

Answer 69

Answer: The value of supply for imported goods, excluding 3rd Schedule items, is determined under the Customs Act, including the customs and excise duty levied on the goods.

Question 70

2. What happens if there is reason to believe that the value of supply is under-declared in the tax invoice?

Answer 70

Answer: In case of suspected under-declared value in the tax invoice, the value of supply is determined by the Valuation Committee comprising representatives of trade and the sales tax department.

Question 71

3. How is the value of supply calculated in cases of special nature transactions where it is difficult to ascertain the value?

Answer 71

Answer: In special nature transactions where it is challenging to determine the value, the value of supply is based on the open market price. The open market price refers to the price at which the supply could be obtained in an open market between unrelated parties.

Question 72

1. Explain the determination of the value of supply in specific situations:

Answer 72

• Imported goods (excluding 3rd Schedule items): The value of supply is determined under the Customs Act, taking into account the customs and excise duty levied on the goods.
  
  • Trade discounts and under-declared value: If there is reason to believe that the value is under-declared in the tax invoice or trade discounts are involved, the value of supply is determined by the Valuation Committee, which consists of representatives from the trade and sales tax department.
  • Special nature of transactions: In cases where the nature of the transaction makes it difficult to ascertain the value, the value of supply is based on the open market price. The open market price represents the price at which the supply could be obtained between unrelated parties in an open market.

Question 73

2. How does the determination of value impact the calculation of sales tax?

Answer 73

Answer: The value of supply is crucial for calculating the sales tax liability. By accurately determining the value, businesses can apply the appropriate tax rate to calculate the amount of sales tax payable on a taxable supply.

Question 74

3. Can you provide an example of how the value of supply is determined in practice?

Answer 74

Answer: Certainly! Let’s consider a scenario where a supplier provides a trade discount on a taxable supply. In such cases, the value of supply would be calculated based on the discounted price (excluding tax) as shown in the tax invoice, provided that the discount is in accordance with normal business practices.