Can a bakery or sweet shop claim input tax on flour, sugar, ghee and packaging?

A bakery can claim input tax only when three things line up: it is registered, it holds proper tax invoices for purchases that actually carried sales tax, and those purchases are used for taxable supplies. The Sales Tax Act, 1990 then limits how much of that credit can be used in a month.

What does the law say?

Section 7(1) lets a registered person deduct input tax paid or payable during the tax period, for taxable supplies made or to be made, from the output tax due for that period. It is expressly subject to sections 8 and 8B. A proviso allows a missed claim to be made in any of the six succeeding tax periods.

Section 7(2) makes a tax invoice a condition. For a local purchase, the buyer must hold a tax invoice in its name bearing its registration number. For electricity or gas, a bill bearing the registration number and the connection address serves.

Section 8 bars input tax on, among other things:

• goods or services used for anything other than taxable supplies (8(1)(a) and (f));
• tax not deposited by the supplier, purchases flagged by CREST, and fake invoices (8(1)(ca), (caa), (d));
• goods for personal or non-business use (8(1)(g));
• building materials and fittings for immoveable property (8(1)(h));
• vehicles, electrical and gas appliances, furniture, furnishings and office equipment (excluding electronic cash registers), unless bought for resale (8(1)(i)).

Section 8(2) adds that a person dealing in taxable and non-taxable supplies can reclaim only the proportion of input tax attributable to taxable supplies, in the manner the Board specifies. Section 8(3) says no one other than a registered person can deduct input tax.

Section 8B(1) caps input tax adjustment at ninety per cent of output tax for the tax period, except for fixed assets or capital goods. Section 8B(6) reduces a Tier-1 retailer’s adjustable input tax for the whole tax period by 60% if it does not integrate its retail outlet as prescribed.

How does it work for flour, sugar, ghee and packaging?

Purchase	What the Act shows	Input tax position
Wheat flour, maida	Exempt: Sixth Schedule, Table-1, serial 19 (“Rice, wheat, wheat and meslin flour”)	No tax charged, so nothing to claim
Desi ghee, unbranded	Exempt on local supply: Table-2, serial 35, excluding that sold under a brand name	Nothing to claim on unbranded desi ghee
Sugar, branded ghee, cooking oil, packaging, cake boxes	No Sixth Schedule exemption found for these	Claimable if a registered supplier’s tax invoice shows the tax and the item is used for taxable sales
Ovens, chillers, display counters	Section 8(1)(i) bars electrical and gas appliances and furniture	The Act does not say whether commercial bakery ovens count as “appliances”. Read clause (i) closely

Why doesn’t bread give input tax credit?

Serial 54 of Table-2 of the Sixth Schedule exempts all types of breads, nans and chapattis. Input tax under section 7 is linked to taxable supplies, and section 8(1)(a) bars input tax on goods used for anything else. So sugar, packaging or other taxed inputs used to make bread do not produce a claim. Where the same inputs go into both bread and cakes, section 8(2) limits the claim to the taxable share. The method of splitting is left to the Board and is not set out in the Act.

Worked example (illustrative figures)

Rahat Bakers, a registered Tier-1 bakery in Faisalabad, integrated with the Board’s system. One month:

• Taxable sales (cakes, pastries, mithai), excluding tax: Rs. 2,000,000.
• Output tax at 18% under section 3(1) read with 3(9A): Rs. 2,000,000 x 18% = Rs. 360,000.
• Tax shown on invoices for sugar, cream, boxes and branded ghee used only for cakes and pastries: Rs. 195,000.
• Flour bought: exempt, no tax on the invoice.

Steps:

1. The 90% cap: Rs. 360,000 x 90% = Rs. 324,000.
2. Input tax of Rs. 195,000 is below Rs. 324,000, so all of it can be adjusted.
3. Tax payable: Rs. 360,000 - Rs. 195,000 = Rs. 165,000.

If input tax were Rs. 340,000 that month: only Rs. 324,000 can be adjusted. Payable: Rs. 360,000 - Rs. 324,000 = Rs. 36,000. The Rs. 16,000 excess can be adjusted or refunded only on the conditions in section 8B(2), on a yearly basis under 8B(3).

If Rahat Bakers had not integrated its outlet: section 8B(6) reduces the adjustable input tax by 60%. Rs. 195,000 x 60% = Rs. 117,000 reduction. Adjustable: Rs. 195,000 - Rs. 117,000 = Rs. 78,000. Payable: Rs. 360,000 - Rs. 78,000 = Rs. 282,000.

Common mistakes

• Expecting credit on flour. Flour is exempt, so the invoice carries no sales tax.
• Claiming on inputs for bread. Bread is exempt, and section 8(2) limits credit to the taxable share.
• Claiming without a tax invoice in the bakery’s own name. Section 7(2) requires the invoice to bear the buyer’s registration number.
• Ignoring the 90% cap. Section 8B(1) applies every tax period, apart from fixed assets or capital goods.

What to check in the official text

Read sections 7, 8 and 8B, and section 3(9A), of the Sales Tax Act as amended to 30 June 2026. In the official PDF, check serial 19 of Table-1 and serials 35 and 54 of Table-2 of the Sixth Schedule. Section 8B(1) lets the Board exclude persons from the cap or change the limit by notification, and section 8(1)(b) lets the Federal Government bar further items. Those notifications are not in this corpus.