What is Input Tax and Output Tax?
Input tax is the sales tax a registered business pays on its purchases; output tax is the sales tax it charges on its sales. The business pays the difference.
Updated
Meaning
English
Input tax is the sales tax a registered business pays on its purchases; output tax is the sales tax it charges on its sales. The business pays the difference.
Roman Urdu
Input tax woh sales tax hai jo registered karobar apni khareedari par deta hai; output tax woh jo apni sale par leta hai. Dono ka farq jama karwaya jata hai.
Also called input tax, output tax, input tax adjustment, tax credit.
Example
In a month a registered distributor charges 900,000 rupees of output tax on its sales and has valid invoices showing 700,000 rupees of input tax on its purchases. Its return shows 200,000 rupees payable.
How it works
FBR describes input tax as the tax paid by a registered person on taxable goods and services purchased, including tax paid on imports, and output tax as the sales tax charged on the sale or supply of taxable goods or services. Section 7 of the Sales Tax Act, 1990 lets a registered person deduct input tax from output tax, subject to conditions and limits in the Act.
The conditions matter in practice: the purchase must be for taxable business supplies, backed by a valid sales tax invoice, and the supplier must be active and have declared the sale. Input tax on some items, and above certain limits, cannot be claimed.
In Nafaa
Nafaa's monthly tax report gives the output side for each authority: taxable sales, tax, and returns as credit notes with their tax. Input tax claims are prepared by the business or its tax adviser.
Official source
FBR: Sales Tax Basics and the Sales Tax Act, 1990 on FBR: Acts, Rules and Ordinances. Rates, thresholds and dates change with Finance Acts and S.R.O.s; check the current position with the authority or a tax adviser.
Related terms
- Sales Tax (GST)
Sales tax, often called GST in Pakistan, is a tax on the supply of goods charged under the federal Sales Tax Act, 1990, with services taxed separately by the provinces.
- Sales Tax Invoice
A sales tax invoice is the invoice a sales tax registered person must issue for a taxable supply, showing the details the Sales Tax Act, 1990 requires, including both parties' registration numbers and the tax charged.
- STRN (Sales Tax Registration Number)
The Sales Tax Registration Number identifies a business registered with FBR for sales tax.