Sales Tax vs. PRA Tax: What Lahore Businesses Get Wrong
By Ali Haider, Advocate High Court - Published
A recurring compliance mistake we see from businesses starting up in Lahore is registering with the wrong tax authority — or not registering with the right one at all — simply because 'sales tax' sounds like a single, unified tax. In Pakistan, it isn't. Since the 18th Constitutional Amendment devolved the power to tax services to the provinces, sales tax on goods and sales tax on services are collected by entirely different authorities, under different statutes.
Goods: FBR, under the Sales Tax Act, 1990
If your business manufactures, imports, distributes, or sells taxable goods, sales tax registration and returns go through the Federal Board of Revenue under the Sales Tax Act, 1990. Registration is done through IRIS, and registered persons file periodic sales tax returns reporting output tax on sales and claiming input tax on qualifying purchases.
Services: Punjab Revenue Authority, under the Punjab Sales Tax on Services Act, 2012
If your business is based in Punjab and provides taxable services — this covers a wide range, including consultancy, IT services, advertising, franchise services, construction, and many professional services — sales tax on those services is instead collected by the Punjab Revenue Authority (PRA), not FBR. PRA registration and e-filing is done through its own portal, separate from IRIS, and the applicable rates and exemptions are set under provincial law rather than the federal Sales Tax Act.
Where businesses get caught out
- A business that both sells goods and provides a related service (for example, a workshop that sells parts and charges for labour) may need to register with both FBR and PRA, and correctly split its invoicing between the two.
- Registering with FBR for sales tax when the business is actually service-based means filing (and potentially paying) in the wrong regime, while remaining non-compliant with the one that actually applies.
- Businesses operating across provincial lines need to check whether a service is taxed at the point of provision, the recipient's location, or under specific place-of-supply rules that differ from the federal regime's treatment of goods.
- Withholding tax obligations for services also work differently under PRA rules than under the federal regime, which matters for anyone procuring services from a PRA-registered vendor.
Getting it right from the start
The cost of misregistration usually isn't discovered until an audit or a client's withholding query surfaces it — by which point back returns, penalties, and default surcharge can be involved on top of the tax itself. It's considerably cheaper to get the goods-vs-services classification, and the FBR-vs-PRA registration decision, right before your business starts invoicing.
This article is general information, not tax advice for your specific situation. Legal Visionaries advises Lahore businesses on SECP incorporation, FBR and PRA registration, and ongoing tax compliance — reach out if you're setting up, or unsure whether you're registered correctly.