A new definition of a corporation under the Sales Tax Act of 1990 has just been released by the Federal Board of Revenue (FBR), and it will take effect on July 1st, 2023.

This updated definition strives to clarify the numerous entities that are classified as companies for sales tax purposes.

Definition of a Company

The following entities are included in the FBR’s revised definition of a company under the Sales Tax Act of 1990:

(a) Company as defined by the Companies Ordinance of 1984: This includes any entity that is classified as a company under the terms of that ordinance. The legal basis for the formation, operation, and governance of companies in Pakistan is laid forth in the Companies Ordinance, 1984.

(B) Body Corporate under Pakistani Laws: This category includes any body corporations established under the authority of Pakistani law. Such corporate entities may be created for particular purposes, such as those of statutory authorities, regulatory agencies, or government-owned corporations.

(c) Modaraba: In an Islamic financial agreement known as a modaraba, one party provides finance while the other provides knowledge or management abilities in order to launch a particular commercial enterprise. The Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 governs modarabas.

(d) Body Incorporated Under Foreign Company Laws: This category includes entities formed in accordance with laws governing the incorporation of corporations in nations other than Pakistan. These organizations could be foreign businesses with operations or a presence in Pakistan.

(e) Trusts, Co-operative Societies, Finance Societies, and Other Societies: This category comprises organizations created or organized in accordance with any Pakistani law now in effect, including trusts, co-operative societies, finance societies, or any other society organized for particular objectives specified by applicable law.

(f) Foreign Associations Declared as Companies: This refers to foreign associations that the FBR has declared to be companies for the purposes of the Income Tax Ordinance of 2001, regardless of whether they are incorporated or not. The incorporation of overseas associations as corporations for income tax purposes is made easier by this rule.

Consequences for Businesses

For companies doing business in Pakistan, the revised Sales Tax Act of 1990 definition of a company has important implications:

Tax Liabilities:

Companies that come under the below categories are obligated to collect and remit sales tax, which includes registering, reporting, and paying. Business owners must be aware of their classification in order to adhere to the appropriate tax laws.

Governance and Compliance:

Companies must abide by the legal and governance requirements unique to each corporate type, as established by numerous laws. This entails completing reporting requirements, keeping accurate records of accounts, and abiding by pertinent laws applicable to their particular structure.

Legal Status and Recognition:

The revised definition makes it clear how various businesses are recognized legally and ensures that they receive the proper treatment under the Sales Tax Act of 1990. It creates a standard framework for taxation and enables businesses to understand their rights and obligations within the tax system.

Conclusion

The amended Sales Tax Act of 1990 definition of a corporation broadens the range of entities that are included in this group for the purposes of sales tax. The definition makes sure that the taxation framework is broad and takes into account a wide range of business structures by including a variety of legal organisations, such as businesses under Pakistani law, foreign corporations, modarabas, trusts, co-operative societies, finance societies, and others. To promote an open and law-abiding business climate in Pakistan, it is essential for companies to comprehend how they fall under this definition and to adhere to the pertinent sales tax duties.