Sales Tax Trade Facilitation

1. CONCEPT

Sales tax is a single stage taxation which is levied only once on raw material (input) or finished product (output). It is imposed on all taxable goods manufactured in the federation or imported for local use.

2. TAXABLE GOODS

a. All goods manufactured in the federation or imported are subject to sales tax except specifically exempted under Sales Tax (Exemption) Order 1980 by the Minister Of Finance under Section 8 Sales Tax Act 1972.

b. The determinations of tariff code on goods taxable or non taxable is based on Customs Duties Order 2008.

3. TYPE OF FACILITIES

a. Sales Tax Exemption

Sales tax is exempted under Sales Tax (Exemption) Order 2008.

- Schedule A – list of goods exempted from sales tax.

Goods are listed according to tariff code and description in the current Customs Duties Order. Both orders are to be used in determining whether goods are exempted or not. All goods are taxable except those listed in Schedule A.

- Schedule B – list of persons (Ministries/ government department / associations / importers/ manufacturer and others) exempted from sales tax on goods purchased or imported are stated.

- Schedule C – list of manufacturers/ traders of certain goods are exempted from sales tax on raw materials / component and packing materials.

b. Facilities

Licensed manufacturer may procure sales tax exempted raw materials, components and packing materials under Sales Tax Act 1972 through 3 ways that is ring system, drawback and credit system.

i. Ring System Facilities (Section 9 Sales Tax Act 1972)

Facilities can be applied using these forms:

- CJ No.5 – used by licensed manufacturer

- CJ No.5A – used by traders on behalf of licensed manufacturer.

- CJ No.5B – used for further processing (sub-contract) between licensed manufacturers.

ii. Refund (Section 31 Salex Tax Act 1972)

The act allows a trader (vendor) to claim sales tax refund on raw material / component sold to a licensed manufacturer. In this system a trader pays sales tax during importation or purchases of raw material / component and sells at a price excluding sales tax to a licensed manufacturer with CJ No.5 facility. Application can be made using JKED No.2 form.

iii. Credit System (Section 31A Sales Tax Act 1972)

This act allows manufacturers to use credit system because they have no other choice except to procure or to import raw materials/ components inclusive of sales tax. This facility is given to licensed manufacturers who cannot use ring system or claim refund and to avoid double taxation. Licensed manufacturers may deduct the tax when they submit sales tax return.

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	Page Content 1. CONCEPT Sales tax is a single stage taxation which is levied only once on raw material (input) or finished product (output). It is imposed on all taxable goods manufactured in the federation or imported for local use. 2. TAXABLE GOODS a. All goods manufactured in the federation or imported are subject to sales tax except specifically exempted under Sales Tax (Exemption) Order 1980 by the Minister Of Finance under Section 8 Sales Tax Act 1972. b. The determinations of tariff code on goods taxable or non taxable is based on Customs Duties Order 2008. 3. TYPE OF FACILITIES a. Sales Tax Exemption Sales tax is exempted under Sales Tax (Exemption) Order 2008. - Schedule A – list of goods exempted from sales tax. Goods are listed according to tariff code and description in the current Customs Duties Order. Both orders are to be used in determining whether goods are exempted or not. All goods are taxable except those listed in Schedule A. - Schedule B – list of persons (Ministries/ government department / associations / importers/ manufacturer and others) exempted from sales tax on goods purchased or imported are stated. - Schedule C – list of manufacturers/ traders of certain goods are exempted from sales tax on raw materials / component and packing materials. b. Facilities Licensed manufacturer may procure sales tax exempted raw materials, components and packing materials under Sales Tax Act 1972 through 3 ways that is ring system, drawback and credit system. i. Ring System Facilities (Section 9 Sales Tax Act 1972) Facilities can be applied using these forms: - CJ No.5 – used by licensed manufacturer - CJ No.5A – used by traders on behalf of licensed manufacturer. - CJ No.5B – used for further processing (sub-contract) between licensed manufacturers. ii. Refund (Section 31 Salex Tax Act 1972) The act allows a trader (vendor) to claim sales tax refund on raw material / component sold to a licensed manufacturer. In this system a trader pays sales tax during importation or purchases of raw material / component and sells at a price excluding sales tax to a licensed manufacturer with CJ No.5 facility. Application can be made using JKED No.2 form. iii. Credit System (Section 31A Sales Tax Act 1972) This act allows manufacturers to use credit system because they have no other choice except to procure or to import raw materials/ components inclusive of sales tax. This facility is given to licensed manufacturers who cannot use ring system or claim refund and to avoid double taxation. Licensed manufacturers may deduct the tax when they submit sales tax return.

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Sales Tax Trade Facilitation