Taxation of Transactions under dealership arrangements

Taxation of Transactions under dealership arrangements

Taxation of Transactions under dealership arrangements: A new section 108B has been inserted in the Ordinance which states that where products listed in the Third Schedule to the Sales Tax Act, 1990 are supplied to a person under a dealership arrangement with the dealers and such dealer is not registered under the Sales Tax Act, 1990 and also is not appearing in the ATL, an amount equal to 75% of the dealer’s margin shall be added to the income of the person making supplies.

Further, it is stated that 10% of the sale price shall be deemed/treated as dealer’s margin. This is illustrated through the following examples:-

Example 1.

XYZ pvt Limited (selling aerated beverages through dealership arrangements)

Sales Rs.10,000,000

Cost of sales Rs.6,000,000

Gross Profit Rs.4,000,000

Admin & distribution expenses Rs.2,000,000

Taxable Income Rs.2,000,000

The entire sales are under a dealership arrangement to dealers who are not registered under the ST Act, 1990 nor appearing in ATL.

Dealers’ margin @ 10% of sale Rs. 1,000,000

75% to be added in income Rs. 750,000

Example 2.

XYZ Pvt Limited.

Sales Rs. 10,000,000

Cost of sales Rs. 6,000,000

Gross Profit Rs. 4,000,000

Admin & distribution expenses Rs. 2,000,000

Taxable Income Rs. 2,000,000

The entire sales are under a dealership arrangement to dealers who are registered under the ST Act, 1990 but not appearing in ATL. As both conditions of being registered under the ST Act, 1990 and also appearing in the ATL are not met, 75% of the dealer’s margin will be added in income.

Dealers’ margin @ 10% of sale Rs. 1,000,000

75% to be added in income Rs. 750,000

These explanations have been issued by FBR after the Finance Act 2019 approved / passed from the parliament of Pakistan.