Sales tax on services versus goods

By Junaid IqbalUpdated 1 August 20264 min read

CA Finalist, ACCA FinalistEditorial team: Chartered Advisory Team of Chartered Accountants

Quick answer: Sales tax on goods is federal, administered by FBR, while sales tax on services is provincial, administered by each province's revenue authority (PRA, SRB, KPRA, BRA). A business supplying both registers with FBR for goods and the relevant provincial authority for services, and files separately with each.

One of the first things that confuses a new business in Pakistan is discovering that "sales tax" is not one tax administered by one authority. Goods and services are taxed by different governments under different laws, and a business that supplies both has to deal with both systems at once. This split — federal for goods, provincial for services — is a consequence of the constitutional division of taxing powers, and getting it right at the outset avoids registering in the wrong place and filing the wrong returns.

The federal-provincial split

The dividing line is the nature of the supply:

Goods are within federal jurisdiction. Sales tax on goods is charged under the Sales Tax Act 1990 and administered by the Federal Board of Revenue.
Services are within provincial jurisdiction. Each province charges sales tax on services under its own law, through its own revenue authority.

The four provincial authorities are the Punjab Revenue Authority (PRA), the Sindh Revenue Board (SRB), the Khyber Pakhtunkhwa Revenue Authority (KPRA) and the Balochistan Revenue Authority (BRA), with the Islamabad Capital Territory operating its own arrangement for services. Each has its own registration, its own return, its own rates and its own rules. A service business does not register "for sales tax" in the abstract — it registers with the specific authority for the province where it operates.

Why this matters practically

The split has three immediate consequences for a business:

Where you register. Goods → FBR; services → the relevant provincial authority. Registering with the wrong one does not discharge the obligation to the right one.
How many returns you file. A goods-only business files with FBR. A services-only business files with one provincial authority. A business doing both files with each — and a services business operating in several provinces may file with several provincial authorities.
How input tax works. Input tax adjustment across the federal and provincial systems is subject to arrangements between the authorities, and the ability to offset service-sector input tax against goods output tax, or vice versa, is not automatic. This is a technical area covered separately under input tax adjustment and apportionment.

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Classifying the supply

Because everything follows from whether a supply is a good or a service, classification is the decision that matters. Most supplies are obvious — a manufacturer sells goods, a consultant sells services — but the edges cause disputes. Software, digital deliverables, works contracts that combine materials and labour, restaurant supplies that mix food and service, and franchising all sit near the boundary. Where a single arrangement contains both a goods element and a services element, it may need to be split, with the goods portion reported federally and the services portion provincially. When in doubt, check the position with the specific authority, because the provinces and FBR do not always classify a borderline supply the same way.

Worked example. A company sells air conditioners (goods) and also provides annual maintenance contracts (a service). It registers with FBR for the equipment sales and files federal sales tax returns for them; it registers with the provincial authority where it provides maintenance and files provincial returns for the service revenue. One customer invoice covering both a unit and a maintenance plan may need the two elements shown separately so each lands in the right return.

Mixed supplies and cross-province services

Two situations reliably cause difficulty. The first is the mixed supply above, where a bundled price has to be unbundled for tax. The second is the cross-province service — a firm based in Punjab serving a client in Sindh, for example. Provincial sales tax on services generally attaches where the service is rendered or the taxable activity occurs, but the provinces apply their own sourcing rules and more than one may assert a claim on the same service. This overlap is a live area of dispute, and a business with cross-province service revenue should confirm each relevant authority's position rather than assume a single province taxes the service.

Registering and reconciling

The practical route is: classify your supplies, then register where each requires — see sales tax registration for the federal process and provincial sales tax on services for the provincial side. Keep the federal and provincial returns reconciled to one revenue figure so the totals tie to your income tax turnover, and make sure your invoices meet sales tax invoice requirements for whichever system they belong to. Remember too that the sales tax registration number differs from the income tax number — see STRN versus NTN — so a business in both systems carries multiple registrations.

Confirm before you rely on this. Rates, classifications and sourcing rules differ between FBR and each provincial authority and change over time. Confirm the current position with the relevant authority or take advice before registering or filing.

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.

Questions people also ask

Do I register for sales tax with FBR or my provincial authority?

It depends on what you supply. Goods are federal, so goods suppliers register with FBR. Services are provincial, so a service provider registers with the revenue authority of the province where the service is rendered — PRA in Punjab, SRB in Sindh, KPRA in Khyber Pakhtunkhwa, BRA in Balochistan. A business doing both registers in both systems.

My business supplies both goods and services. Do I file two returns?

Yes. Because the two are administered by different authorities, you file a federal sales tax return for the goods with FBR and a provincial return for the services with the relevant provincial authority. The two returns should reconcile to the same underlying revenue, and keeping the classification clean at invoicing is what makes that reconciliation possible.

Which province taxes a service if my client is in another province?

Provincial sales tax on services generally follows where the service is rendered or the taxable activity takes place, but the provinces apply their own rules and there can be overlap where a service touches more than one province. This is one of the genuinely contested areas of Pakistani indirect tax, so a cross-province service arrangement is worth checking against each authority's position rather than assuming a single answer.

Scope note: General educational information for Pakistan, not a legal opinion or a substitute for advice based on your documents. Law, notifications, portal procedures and individual facts can change the result.

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