If sales tax is collected through my electricity bill, do I still need to register and file sales tax returns?

What does the law say?

Two provisions answer the question: one on registration, one on returns.

Registration: section 14(1) of the Sales Tax Act, 1990. It lists who must register if making taxable supplies in the course of a taxable activity. Clause (b) covers “a retailer who is liable to pay sales tax under the Act or rules made thereunder, excluding such retailer required to pay sales tax through his electricity bill under sub-section (9) of section 3”. A retailer whose sales tax is taken through the electricity bill is therefore outside the compulsory registration list for being a retailer.

Returns: rule 14(1) of the Sales Tax Rules, 2006 (edition amended to 30 June 2025). Rule 14(1) sets the monthly return, Form STR-7, for every person registered under the Sales Tax Act or the Federal Excise Act, but it carves out “a retailer not being a tier-1 retailer”. So even a non-Tier-1 retailer who happens to hold a registration is excluded by rule 14(1) from the STR-7 return.

How does the tax get reported, then?

Through the electricity supplier. Section 3(9) makes the supplier collect the tax on the retailer’s monthly bill and “deposit the amount so collected directly without adjusting against his input tax”. The supplier’s own STR-7 return has a dedicated line for it: row 18, “Sales Tax u/s 3(9) on electricity supplied to Retailers (non-Adjustable)”. The words “non-Adjustable” match the Act: the amount is paid over as it is and is not netted against the supplier’s input tax.

The shopkeeper does not file anything under section 3(9). The bill is the collection mechanism.

Worked example (illustrative figures)

Imran runs a mobile accessories shop in a street market in Rawalpindi. It is not in a mall, not part of a chain, and its electricity bills for the past twelve months total Rs. 216,000 (Rs. 18,000 a month).

1. Is it Tier-1? Rs. 216,000 is well under the Rs. 1,200,000 twelve-month electricity threshold in section 2(43A)(c), and none of the other categories apply. Not Tier-1.
2. Sales tax. Each bill of Rs. 18,000 is at or under Rs. 20,000, so section 3(9) charges 5 percent: Rs. 900 a month.
3. Registration. Section 14(1)(b) excludes him as a retailer paying through the electricity bill.
4. Returns. Rule 14(1) excludes a retailer that is not Tier-1 from filing STR-7.
5. Reporting. His Rs. 900 a month appears in the supplier’s return under row 18.

Now suppose Imran moves to an air-conditioned plaza and takes a regular shop unit, not a kiosk. Section 2(43A)(b) makes him a Tier-1 retailer. From then on section 3(9) no longer applies to him, he pays under section 3(9A) at the rate applicable to each item sold, he is a retailer liable to pay sales tax under section 14(1)(b) without the electricity-bill exclusion, and rule 14(1) no longer excludes him from STR-7. The second proviso to section 3(9) provides for the Commissioner to order the supplier to stop the bill charge for a Tier-1 retailer.

What if I sell online as well?

Section 14(1A), added by the Finance Act, 2025, requires persons selling digitally ordered goods from within Pakistan through an online marketplace, website or app to apply for registration, but it excepts cottage industry and “the retailers who are required to pay sales tax through electricity bills under sub-section (9) of section 3”. Separately, section 3(7A)(ii) says the tax withheld under the Eleventh Schedule by the payment intermediary or courier is the final discharge of liability on digitally ordered goods supplied by retailers other than Tier-1 retailers.

What if I am registered for another reason?

Section 14(1) has other clauses. A person who is also an importer (clause (c)), a manufacturer not running a cottage industry (clause (a)), or a wholesaler, dealer or distributor (clause (e)) is required to register under that clause. The electricity-bill exclusion in clause (b) covers only the retailer category.

Is income tax affected?

No. Section 3(9) and section 14 are sales tax provisions. Income tax on the shop’s profits, the income tax return, and the advance income tax collected on commercial electricity bills under section 235 of the Income Tax Ordinance, 2001 are all governed by that Ordinance. The section 235 proviso that removes the charge for people on the Active Taxpayers’ List is limited to domestic consumers, so a shop’s commercial connection is not covered by it.

Common mistakes

• Assuming “no registration” means “no tax”. The tax is still paid, through the bill.
• Reading “non-Adjustable” as a penalty. It describes how the supplier treats the amount in its return: it cannot set it off against input tax.
• Assuming Tier-1 status is permanent or never arrives. The electricity and turnover tests in section 2(43A) look at the preceding twelve consecutive months, so a growing shop can cross into Tier-1.
• Treating the bill sales tax as settling income tax. It is charged under a different Act.

What to check in the official text

Read section 14(1), (1A) and (2A) of the Sales Tax Act, section 3(9) and 3(9A), and the Tier-1 definition in section 2(43A). In the Sales Tax Rules, 2006 read rule 14(1) and row 18 of Form STR-7. The Rules in this corpus are amended to 30 June 2025, so check for later amendments.