Federal or provincial? Getting the sales tax fork right
The single most consequential sales tax decision a Pakistani business makes is not which rate to charge. It is which authority it answers to. That question is settled by whether the supply is goods or services, and where the service is rendered.
The constitutional split
The 18th Amendment moved taxation of services to the provinces. Federal jurisdiction over goods remained with FBR. The practical result:
| Supply | Law | Authority | Standard rate |
|---|---|---|---|
| Goods | Sales Tax Act 1990 | Federal Board of Revenue | 18% |
| Services in Punjab | Punjab Sales Tax on Services Act 2012 | Punjab Revenue Authority | 16% |
| Services in Sindh | Sindh sales tax on services law | Sindh Revenue Board | 15% |
| Services in Khyber Pakhtunkhwa | KP services tax law | KP Revenue Authority | 15% |
| Services in Balochistan | Balochistan services tax law | Balochistan Revenue Authority | 15% |
Telecommunication services are taxed higher, generally at 19.5%, across most jurisdictions.
Step one: classify the supply, not the business
Businesses classify themselves — "we are a construction company", "we are an IT firm" — and then apply one treatment to everything they invoice. The law classifies supplies. Work revenue line by revenue line:
- List every distinct thing you charge for, as it appears on an invoice.
- For each, ask whether it is a supply of goods or the rendering of a service under the relevant statute.
- For services, identify the schedule entry that describes it and the rate attached to that entry.
- Flag anything you cannot place confidently — those are the lines worth a written clarification.
We settle the taxable value, apportion input tax and file monthly with the right federal or provincial authority.
Avail our sales tax servicesStep two: place of provision
For services, the province where the service is rendered — or where the recipient is located, depending on the rule applied — determines the authority, not where your office is. A Lahore consultancy serving a Karachi client may need to apply Sindh treatment to that engagement and register with the Sindh Revenue Board.
Getting this wrong produces two simultaneous problems: tax collected and remitted to an authority with no jurisdiction, and an unregistered exposure with the authority that has it. Neither cancels the other out.
Step three: register where you actually have obligations
- Obtain the FBR NTN — income tax registration precedes both regimes.
- Register federally if you supply goods within scope — federal registration.
- Register with each provincial authority where you render taxable services — PRA, SRB and the others as applicable.
- Configure invoicing so each line carries the right registration number, rate and authority.
- Set up separate monthly return cycles and a single reconciliation back to the income tax return.
A worked classification
The division is constitutional before it is administrative. Federal sales tax on goods is imposed by section 3 of the Sales Tax Act 1990; sales tax on services belongs to the provinces and is imposed by their own statutes — section 3 of the Punjab Sales Tax on Services Act 2012, section 3 of the Sindh Sales Tax on Services Act 2011, and the corresponding provisions in the Khyber Pakhtunkhwa and Balochistan Acts. There is no single instrument to consult, which is precisely why classification has to happen before registration.
Take a Lahore business that supplies, installs and maintains commercial kitchen equipment, and also sells spare parts online to customers nationwide. Four revenue lines, four answers:
| Revenue line | Character | Regime |
|---|---|---|
| Sale of kitchen equipment | Supply of goods | Federal, Sales Tax Act 1990 |
| Installation and commissioning | Service, rendered at the customer site | Provincial, by place of provision |
| Annual maintenance contract | Service | Provincial, by place of provision |
| Spare parts sold online | Supply of goods | Federal |
This business needs federal registration for the goods lines and provincial registration in each province where it installs and maintains — potentially more than one. Two of its four revenue lines are invoiced under one registration and two under another, on different return cycles at different rates.
The error to avoid is bundling installation into the equipment price to keep the invoice simple. Where the components are separately identifiable and separately priced they are generally treated separately; where they are rolled into one figure, the treatment turns on the dominant character of the supply, and you have lost the ability to argue the point cleanly. Price the lines separately and describe them accurately on the invoice.
Where this goes wrong
- Charging 18% on a service because that is the rate everyone knows. Punjab services are 16%; most other provinces 15%.
- One registration for a multi-province service business, leaving exposures in every province except one.
- Bundling goods and services into a single line item so neither can be evidenced cleanly.
- Assuming input tax flows across regimes. It generally does not.
- Treating export of services as out of scope rather than as zero-rated with conditions to document.
Sources
This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.
- Sales Tax Act 1990, amended through 30 June 2026 (FBR)
- Sales Tax Basics (FBR)
- Punjab Revenue Authority sales tax guidance
- Sindh Revenue Board
- Khyber Pakhtunkhwa Revenue Authority
- Balochistan Revenue Authority
Questions people also ask
Is software a good or a service?
It depends on how it is supplied and how the relevant law classifies it. Licensed software delivered electronically, software developed to order, and packaged software sold on physical media can be treated differently. This is one of the classification questions most worth resolving with the authority in writing before you invoice at scale, because reclassification during an audit is materially more expensive.
We supply equipment with installation and annual maintenance. How is that taxed?
Potentially in two regimes. The equipment may be a federal supply of goods and the installation and maintenance a provincial supply of services. Where the components are separately identifiable and priced, they are generally treated separately. Where they are bundled into one price, the treatment depends on the dominant character of the supply and the applicable rules.
What about services rendered in Islamabad Capital Territory?
Islamabad Capital Territory has its own services tax regime rather than falling under any of the four provincial authorities. A business rendering services in Islamabad should establish its position under that regime specifically rather than defaulting to Punjab because of geography.
Can I claim input tax across regimes?
Cross-regime input adjustment is restricted and the rules differ between authorities. Do not assume federal input tax on goods can be set against provincial output tax on services. Where a business operates in both regimes, model the input position for each separately.
Which authority governs if my client is abroad?
Export of services generally attracts zero-rating under the relevant provincial regime, subject to conditions typically including receipt through approved banking channels. Zero-rated is not out of scope — you may still need to be registered and to report the supply, with the conditions documented per engagement.
Send the tax year and the transaction or filing involved, and we will tell you what is actually required.
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