Accountancy Forum

Dear all,

My question is regarding the chargebility of sales tax on discounted supply and free of charge supply. i.e.
<b>
(1)DISCOUNTED PRICE</b>

As per sales tax laws, value of supply for the purpose of levy of sales tax in case of trade discount would be the discounted price. i.e. if sale price is Rs.100 and discount is Rs.20 then value of supply for levy of sales tax would be Rs.80 and sales tax would be Rs.13 i.e.( 100 - 20= 80 X 16% = 13) provided that the discount is mentioned on sales tax invoice and as per normal trade practices.


<b>(2)FREE OF CHARGE</b>

It is also mentioned there that value of supply for free of charge invoices would be taken at their fair market value for the purpose of levy of sales tax. i.e. if a supply of worth Rs.100 is given for FREE even then sales tax would be charged at the rate of 16% on Rs.100 despite the fact that it is given for Rs.Zero.

Question is that in an industry where there is a normal trade practice of issuing invoices with 100% discount-

<b><u>==> would the sales tax on this supply be Rs. 0 or Rs.16 ???</u></b>

Because if we consider the Point # 1 i.e. discounted price (with 100% discount) is NIL, sales tax would be Zero.

But if we consider Point # 2, value of supply of free of charge invoice would be Rs. 100 and sales tax would be Rs.16.


what should we do in this case?

please comment.

Dear Haseeb

How could be is a normal practice to issue inovice on 100 % discount, A company is formed to earn profit, by the way in your case sales tax should be charged at fair market value

Regards
Anfal Shabbir

Tax will be charged, its Gov share, although u discounted 100 %

1. If the discount is in line with industry practice the tax will be payable on discounted price, extra ordnary discounts will be ignored while calculating output tax

2. Free of cost supply will be treated as Free sample & tax will be paid on normal rates i.e 16 in this case

regards,