LHC declares sales tax recovery from unregistered traders illegal

LAHORE: A bench of the Lahore High Court (LHC) has barred the Federal Bureau of Revenue (FBR) from collecting sales tax from unregistered businessmen on its own, ARY News reported on Wednesday.

A two-member bench of the LHC headed by Justice Sajid Mehmood Sethi announced the reserved verdict on various petitions.

The bench declared collection of sales tax by the FBR on its own as unlawful.

The verdict said that the tax collection authority could not recover the sales tax from the unregistered traders.

The court made it mandatory for the FBR to register businessmen first before collection of sales tax, and termed the practice on the part of the bureau as unlawful under the Sales Tax Act, 1990.

The bench said that provision 3 of the Sales Tax Act could only be invoked against any businessmen after his/her registration as taxpayer.

Sales tax is a consumption tax imposed by the government on the sale of goods and services. A conventional sales tax is levied at the point of sale, collected by the retailer, and passed forward to the government.