Does a factory or manufacturing unit have to register for sales tax, and what does FBR ask a manufacturer for at registration?

Every factory that makes goods in Pakistan has to register for sales tax unless it qualifies as a cottage industry. There is no turnover threshold for a manufacturer, and registration comes before the first taxable supply. The Sales Tax Rules then add manufacturer-specific steps: photographs of machinery and the industrial meter, NADRA biometric checks, and possible field verification.

What does the law say?

Section 14(1) of the Sales Tax Act, 1990 says every person making taxable supplies in Pakistan, including zero-rated supplies, in the course of a taxable activity, who falls in any listed category, “is required to be registered”. The first category is “a manufacturer who is not running a cottage industry”. Other categories include importers, exporters who want sales tax refunds against zero-rated supplies, and wholesalers, dealers and distributors.

Section 2(17) defines a manufacturer widely. It covers a person who engages in production or manufacture “whether or not the raw material of which the goods are produced or manufactured are owned by him”, and includes anyone who assembles, mixes, cuts, packages or prepares goods. A dyeing or stitching unit working on a customer’s cloth is therefore within the words of the definition.

The only exit from section 14(1)(a) is the cottage industry definition in section 2(5AB), which needs all four of its conditions to be met, including no industrial gas or electricity connection.

What does FBR ask a manufacturer for at registration?

Rule 5(1) of the Sales Tax Rules, 2006 requires the application to be made on the computerized system in Form STR-1 “before making any taxable supplies”. For a company primarily engaged in manufacture (other than a public limited company, which registers where its registered office is), the jurisdiction is where the factory is. For an unincorporated person with a single manufacturing unit located away from the business premises, it is where the manufacturing unit is.

Rule 5(2) lists what the applicant uploads:

Item	Who
Bank account certificate in the name of the business	All applicants
Registration or consumer number with the gas and electricity supplier	All applicants
Particulars of all branches	Where there are branches
GPS-tagged photographs of the business premises	All applicants
GPS-tagged photographs of machinery and the industrial electricity or gas meter installed	Manufacturers
Balance sheet showing business capital, assets and liabilities	Individuals, AOPs and single-member companies, other than manufacturers

After registration, rule 5(4) requires a visit to a NADRA e-Sahulat Centre within a month for biometric verification. Failure takes the person off the sales tax Active Taxpayer List. Individuals, AOP members and directors of single-member companies must also re-verify every July.

Rule 5(5) adds that for a manufacturer, the Board “may require pre-verification or post-verification or both” through field offices or an authorised third party. Rule 5(6) lets the field office ask for a missing or doubtful document, to be provided within fifteen days.

What if the machinery is not installed yet?

Rule 5A covers a person applying as a manufacturer “without having installed machinery”, for the purpose of importing it. Temporary registration is allowed for sixty days on furnishing the full machinery list with the Bill of Lading or Goods Declaration, and the system issues it within seventy-two hours. During that period the person files monthly returns but may not issue sales tax invoices, and no refund is paid; input tax is carried forward. If the rule 5(2) requirements are not met within sixty days, the temporary registration is disabled and post-dated cheques given to customs are encashed.

Worked example (illustrative figures)

Imran and his brother form a partnership to run a 24-loom weaving shed on the Sargodha Road in Faisalabad, with an industrial electricity connection.

1. They are a manufacturer under section 2(17). The industrial connection alone fails condition (a) of the cottage industry definition, so section 14(1)(a) applies whatever their turnover.
2. As an unincorporated person, they apply in Form STR-1 in the jurisdiction where the business is carried on, before their first sale of greige cloth.
3. They upload the bank certificate, electricity and gas consumer numbers, and GPS-tagged photographs of the shed, the looms and the industrial meter.
4. Within a month, a partner completes biometric verification at NADRA.
5. FBR may send a field team to verify the looms before or after registration.

What if a factory does not register?

Section 14(2A) and rule 6 allow the Commissioner, after inquiry, to register the person compulsorily. Rule 6 sets the process: a notice in Form STR-6, a personal hearing if the person contests, then an order. If the person does not reply within the time given, registration is made through the system with intimation by courier. From that date the person must comply with the Act and rules. If it later turns out the person was not liable, rule 6 requires the registration to be cancelled.

Section 14 also carries two further measures. Section 14AB lets the Board direct gas and electricity companies to discontinue the connections of any person who fails to register. Section 14AC allows the Commissioner to suspend and then bar operation of bank accounts of an unregistered supplier after three hearing opportunities, but it states that it comes into force on a date the Board notifies.

Common mistakes

• Waiting for turnover to grow. Section 14(1)(a) has no threshold for a manufacturer.
• Assuming job work is not manufacturing. Section 2(17) applies whether or not the raw material is owned by the unit.
• Treating registration as the last step. Biometric verification under rule 5(4) must follow within a month, or the Active Taxpayer List status is lost.

What to check in the official text

Read section 14 of the Sales Tax Act with the definitions in section 2(5AB) and 2(17), then rules 5, 5A and 6 of the Sales Tax Rules. The portal screens used to file Form STR-1 are not part of this corpus.