Federal vs Provincial Sales Tax: Goods, Services and Who Collects What
One Country, Two Sales Tax Systems
One thing that confuses a lot of businesses in Pakistan is that sales tax is split between two levels of government. Sales tax on goods is federal, administered by the FBR under the Sales Tax Act 1990. Sales tax on services is provincial, administered by each province's revenue authority. Budget 2026-27 keeps this structure, so you need to know which side each of your sales falls on.
The Federal Side: Goods
Goods are taxed at a standard rate of 18% under the federal regime. If you sell electronics, packaged food or industrial inputs, the tax on the goods themselves is collected by the FBR. Exemptions, the Third Schedule retail-price mechanism, and withholding rules all sit within this federal framework.
The Provincial Side: Services
Services work differently. Each province has its own revenue authority and its own rate:
| Authority | Region | Standard services rate |
|---|---|---|
| PRA | Punjab | 16% |
| SRB | Sindh | 15% |
| KPRA | Khyber Pakhtunkhwa | 15% |
| BRA | Balochistan | 15% |
| ICT | Islamabad Capital Territory | 16% |
Telecom services are taxed at a higher 19.5%. A business providing services in more than one province may need to register with multiple authorities.
Why the Split Causes Problems
The trouble starts with mixed transactions and businesses that operate in more than one province. A company that sells goods and also provides services must apply federal tax to the goods and the correct provincial tax to the services, often on the same engagement. A consultancy operating in Punjab, Sindh and Islamabad must charge three different rates depending on where the service is rendered.
A Worked Example
- A firm supplies equipment (goods) worth Rs 1,000,000: federal sales tax at 18% is Rs 180,000.
- The same firm provides installation services worth Rs 200,000 in Sindh: SRB tax at 15% is Rs 30,000.
- The invoice must show both, attributed to the correct authority.
How Zaffre Axon Manages the Divide
The Zaffre Axon finance module lets you classify each line as a good or a service, then applies federal 18% to goods and the correct provincial rate to services based on jurisdiction. If you work in several provinces, you can map each service to its authority and the right rate comes up on its own. Zaffretech set this up centrally, so one invoice can carry both federal and provincial tax correctly, and Zaffre HRM follows the same setup across the wider Zaffre platform.
Compliance Checklist
- Classify every line as goods (federal) or services (provincial).
- Register with each provincial authority where you provide services.
- Apply the correct province-specific rate to each service.
- Reconcile federal and provincial filings separately.
The Bottom Line
The goods and services split is built into the system and is not going away. Businesses that cope well with it set classification and jurisdiction as rules in their software instead of deciding by hand each time, so every invoice shows the right tax for the right authority.
References: Finance Act 2026 (Federal Budget 2026-27); Sales Tax Act 1990; provincial revenue authority laws (PRA, SRB, KPRA, BRA); FBR.
To have federal and provincial sales tax applied on every invoice without manual work, book a demo of Zaffre Axon.