SALES TAX ON SERVICES IN PAKISTAN

AND

SALES TAX WITHHOLDING RULES

CHARGING/ CLAIMING / WITHHOLDING

WORKSHOP CONDUCTED BY:
SAUD UL HASSAN
SENIOR MANAGER INDIRECT TAX
ERNST & YOUNG FORD RHODES SIDAT HYDER
0336 2551625
saud.hassan@pk.ey.com

27 JANUARY 2015
Abbreviations
FBR The Federal Board of Revenue
SRB The Sindh Revenue Board
PRA The Punjab Revenue Authority
KPRA Khyber Pakhtunkhwa Revenue Authority
ST Act The Sales Tax Act, 1990
ST Rules The Sales Tax Rules, 2006
FE Act The Federal Excise Act, 2005
FE Rules The Federal Excise Rules 2005
PST Ordinances The Provincial Sales Tax Ordinances, 2000
Sindh Act The Sindh Sales Tax on Services Act, 2011
Sindh Rules The Sindh Sales Tax on Services Rules, 2011
Punjab Act The Punjab Sales Tax on Services Act, 2012
Punjab Rules The Punjab Sales Tax on Services Rules, 2012
KPK Act The Khyber Pakhtunkhwa Finance Act, 2013
FED Federal Excise Duty
GST Sales Tax on Goods Under ST Act
Services ST Sales Tax on Services

ACE Consultants Slide  2

 An Overview
Sales Tax In Pakistan
 Under the Constitution of Pakistan sales tax on goods is a Federal subject
and sales tax on services is a Provincial subject.
 Sales tax on goods is governed by the Sales Tax Act 1990 (ST Act) which
is applicable for the whole of Pakistan.
 Certain services are taxable under the Federal Excise Act, 2005 (FE Act).
 Sales tax on services was previously applicable under the Provincial
Sales Tax Ordinances 2000 (PST Ordinances) of each Province i.e.-

1. Sindh 2. Punjab 3. Khyber Pakhtunkhwa (KPK)

4. Baluchistan 5. Islamabad Capital Territory (2001).
 The Federal Board of Revenue (FBR) is authorized for administration and
collection of Federal taxes and duties including sales tax under ST Act and
FE under the FE Act.
 Provinces had also authorized FBR for sales tax on services under the PST
Ordinances.
ACE Consultants Slide  3
An Overview
Sales Tax On Services In Pakistan
The Provinces of Sindh, Punjab and KPK have now issued their own
full-fledged sales tax on services Acts by repealing respective PST
Ordinances -

The Sindh Sales Tax on Services Act 2011(Sindh Act), from 01 July 2011

The Punjab Sales Tax on Services Act 2012 (Punjab Act) from 01 July 2012

The Khyber Pakhtunkhwa Finance Act 2013 (KPK Act) from 01 July 2013

The Provinces of Sindh, Punjab and KPK have also established their
own administration and collection authorities namely-

Sindh Revenue Board (SRB)

Punjab Revenue Authority (PRA)
Khyber Pakhtunkhwa Revenue Authority (KPRA)

ACE Consultants Slide  4

An Overview
Sales Tax In Pakistan
Sales Tax in Pakistan
PST Ordinances /FE Act
ST Act
(in sales tax mode)
All goods are •Hotels, clubs and caterers
taxable except •Advertisement on T.V. and radio
the ones
•Courier, custom agents, ship
which are chandlers and stevedores
specifically
exempt. •Advertisement on CC and cable TV
and newspapers and sign boards
• Travel and carriage of goods by Air
•Telecommunication
•Banking , NBFCs, Modarabas and
Insurance etc.
• Franchise, shipping agents
•Stockbrokers and port operators
Administered and Collected by FBR
ACE Consultants Slide  5
Sindh, Punjab
and KPK Acts
•Telecommunication
•Hotels, clubs, caterers,
restaurants and marriage halls
•Advertisement on TV, radio, CC
and cable TV and billboards
•Services rendered at sea and air
port
•Banking, NBFCs Modaraba and
insurance etc
•Franchise and courier services
•Construction and Contractual
•Various other services listed in
Second Schedule to the respective
Acts.
Administered and Collected
by SRB / PRA/ KPRA
An Overview
Sales Tax In Pakistan

Goods Services
On the contrary,
All goods are
only services
taxable unless
specifically
specifically
mentioned as
mentioned as
taxable services
exempt.
are taxable.

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SCOP OF WORKSHOP

1- Charging Provisions

2- Certain Specific Services and Issues

3- Adjustment of Input Tax

4- Sales Tax Withholding Provisions

ACE Consultants Slide  7

 Charging Provisions
Sales Tax on Services in
Pakistan
Taxable Services
Section 3 of the FE Act and PST Ordinances
Section 3(1)(d) of the FE Act provides that a service is Taxable
Service if -

• Services is specified in the First Schedule to the FE Act

• Provided in Pakistan, including
• Services originated outside but rendered in Pakistan

Section 3 of the PST Ordinances provides that a service is Taxable

Service if -
• Services specified in the Schedule
• Provided in the Balochistan /Islamabad

There is No specific definition of expression “Services”

in the FE Act or PST Ordinances or ST Act ?

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Taxable Services
Related Definitions of the FE Act and PST Ordinances
 Services - 2(23) of FE Act
“Services” means services, facilities and utilities leviable to excise duty
under this Act, including the services, facilities and utilities originating
from Pakistan or its tariff area or terminating in Pakistan or its tariff area.

 The expression “provided or rendered” includes originating and

termination of services in Pakistan or respective Province.

Sales Tax Mode

• The FE Act and PST Ordinances provide that sales tax/FED shall be
charged and levied on the specified services in the same manner and at
the same time, as if it were a sales tax chargeable under the ST Act.
• All the provisions of the ST Act and rules made and notifications,
orders and instructions issued thereunder shall, mutatis mutandis,
apply to the collection and payment of tax/duty under the PST
Ordinances or the FE Act.

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Taxable Services
Sindh, Punjab and KPK Acts
Section 3(1) of the Sindh, Punjab and 19(1) of KPK Acts provides
that a Service is a taxable service, if
• Service listed in the Second Schedule to the Act,

• Provided by a registered Person

• From his registered office or place of business in the Sindh

• In the course of an economic activity, including commencement or

termination of the activity.

 Explanation: This sub-Section deals with services provided by registered

persons,

 regardless of whether those services are provided to resident persons or

non-resident persons.

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Taxable Services
Related Definitions - Services
Section 2(79) of Sindh Act, 2(38) of Punjab Act and 2(48) of KPK Act

“Service” or “Services” means anything which is

• Not goods or
• providing of which is not a supply of goods and
• shall include but not limited to the services listed in First Schedule;

 Explanation: A service shall remain and continue to be treated as

service regardless whether or not rendering thereof involves
 any use, supply, disposition or consumption of any goods
 either as an essential or
 an incidental aspect of such rendering
 Contracts involving both goods and supplies ?

ACE Consultants Slide  12

Taxable Services
Related Definitions – Provided or Rendered
Preamble of Sindh and KPK Acts and preamble and Section 3(5) of
Punjab Act provides that the Act is enacted to levy a tax on
Services –
• provided, rendered, executed
• initiated, originated
• received, consumed (Punjab and KPK)
• supplied, delivered, receipted, terminated in the Province
• whether in whole or in part.

• for all matters incidental and ancillary thereto or connected

therewith.
Services initiated or originated from one part and terminated,
received or consumed in another part of Pakistan ?

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Taxable Services
Related Definitions – Person - Registered Person
Section 2(63) of Sindh, 2(29) of Punjab and 2(36) of KPK Acts –
A “Person” means-

• an individual
• an association of individuals or persons
• a company
• Federal or a Provincial Government
• a local authority or local government, or
• a foreign government, a political subdivision of a foreign government, or
a public international organization
 Section 2(71) of Sindh, 2(33) of Punjab and 2(42) of KPK Acts provides-
 “Registered person” means a person who is registered or is liable to be
registered under the Act
 but the person liable to be registered and has not registered shall not be entitled to
any benefit available to a registered person under any provisions of the Act.

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Taxable Services
Related Definitions – Place of Business
Section 2(64) of Sindh, 2(30) of Punjab and 2(37) of KPK Acts -
“Place of Business” means whenever a person -
• owns, rents, shares or in any other manner occupies a space in the
Province from where he carries on an economic activity whether
wholly or partially; or
• carries on an economic activity whether wholly or partially through any
other person such as an agent, associate, franchise, branch, office,
or otherwise in the Province but does not include a liaison office;

Section 3(3) of Sindh and Punjab and 19(3) of KPK Acts provides that

• Where a person has a registered office or place of business in the

Province and another outside the Province,
• the registered office or place of business in the Province and that outside
the Province shall be treated as separate legal persons.

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Taxable Services
Related Definitions – Resident
Section 2(73) of Sindh, 2(35) of Punjab and 2(44) of KPK Acts
“Resident ” means an individual or AOP or Company who,
in a financial year, has –

• A place of business, whether whole or part thereof, in the Province in

any mode, style or manner; or
• A permanent representative to act on his behalf or to provide service on
his behalf in the Province, or
• In case of company or AOP registered office and in case of individual
permanent address in the CNIC is located in the Province, or
• In case of company or AOP, the control or management , whether
whole or part thereof, situated in the Province at any time during the
financial year

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Taxable Services
Related Definitions – Economic Activity
Section 4 of Sindh, 6 of Punjab and 22 of KPK Acts provides -
 “Economic activity” means any activity carried on
 whether continuously, regularly or otherwise
 by a person that involves or is intended to involve provision of
services
 to another person, and includes –
a) an activity carried on in the form of a business,
• including a profession, calling, trade, or undertaking of any kind,
• whether or not, for any consideration or profit;
b) the supply of movable property by way of lease, license or such similar
arrangement; and
c) a one-time transaction or concern in the nature of a business or trade.
 Commencement or termination of an economic activity
 An economic activity does not include “employment” or “a private
recreational pursuit or hobby of an individual”.
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Taxable Services
Person Liable To Pay Tax

Section 3(5)(c ) of the FE Act provides that

• In case of services provided or rendered in Pakistan, the liability to pay

duty shall be of person providing or rendering of such services

Section 3(3)of the ST Act provides that

• In the case of services rendered, the liability to pay the tax shall be of
the person rendering the services

Section 9(1) of Sindh, 11(1) of Punjab and 27(1) of KPK Acts provides -

• Where a service is taxable by virtue of sub-Section (1) of Section 3,

• the liability to pay the tax shall be on the registered person providing
the service.

ACE Consultants Slide  18

Taxable Services
Rate of Tax
 Section 3 of the FE Act and PST Ordinance provides general rate of
FED and sales tax on service at 16%, or
 Any other rate specified in the First Schedule of the FE Act

 Section 8 of Sindh, 10 of Punjab and 26 of KPK Acts provides sales tax

on services shall be charged at the rate specified in the Second
Schedule.
 General rate for of sales tax in Sindh and KPK is 15%
 General rate for of sales tax in Punjab is 16%
 Government, may impose, a higher, lower, fixed or specific rate on
specified services.

 Services liable to reduced rate under the Sindh, Punjab or KPK Acts are
single stage levy .

 i.e. No input adjustment allowed for both suppliers or buyers.

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Taxable Services
Comparative list of Taxable Services and Applicable Rates
 Taxable services are listed in each respective Acts / Ordinances.
 Services liable to FED are listed in Table II of the First Schedule to the
FE Act.
 Services liable to Provincial sales tax are listed in the respective
identical Schedule to the PST Ordinances.
 Services liable to Sindh sales tax are listed in the Second Schedule to
the Sindh Act.
 Services liable to Punjab sales tax are listed in the Second Schedule
to the Punjab Act.
 Services liable to KPK sales tax are listed in the Second Schedule to
the KPK Act.

 For Comparative list of services liable to sales tax / FED –

See Handout -A

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Taxable Services
Value of Taxable Services - Federal
Section 12(2) of the FE Act –
 FED on excisable services including the ancillary facilities or utilities
should be paid on total amount of charges
 Whether services have been provided on payment of charge or free of
charge or on any concessional basis
For the Purposes of services liable to FED or sales tax under the
PST Ordinances, in sales tax mode. Section 2(46) of the ST Act –
 The consideration in money received including all taxes, except sales
tax. Trade discounts mentioned on tax invoice allowed
 Value of services should be open market price if –
 consideration received in kind
 Transaction between Associate Persons
 Any special nature of transaction, it is difficult to ascertain value.
 FBR is empowered to fix the value of any taxable service.
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 Taxable Services
Value of Taxable Services - Provincial
Section 5 of Sindh, 7of Punjab and 23 of KPK Acts provides –
 The value of a taxable service is –
 The consideration in money received including all taxes, except sales tax.
Trade discounts mentioned on tax invoice allowed (Punjab and KPK)
 Whether have been provided on payment of charge or free of charge or on
any concessional basis
 Value of services should be open market price if –
 consideration received in kind
 Transaction between Associate Persons
 Any special nature of transaction, it is difficult to ascertain value.
 Collection Authority is empowered to fix the value of taxable service.
 Section 5 of Sindh, & 8 of Punjab and 23 of KPK Acts provides “Open
Market Price” means – the price, the services or similar services would
fetch in open market between persons not associated, or determined on the
basis of prevailing market conditions
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 Taxable Services
Time of Services Provided or Rendered
Section 17 of Sindh, 18 of Punjab 34 of KPK and 2(44) of ST Acts -
 A taxable service shall be considered to have been provided in the tax
period during which
 it was provided to the recipient
 an invoice for the value of the taxable service was issued or was due
to be issued or sent or due to be sent to the recipient
 consideration for the same was received;
 Whichever is earlier

Provision of services over a period of time

 Section 7 of Sindh, 9 of Punjab and 25 of KPK Acts provide that
 Where a service is provided over a period of time and
 Payment for the same is made on a periodic basis,
 The service shall be treated as comprising two or more separate and
distinct services, for each separate part of the related consideration.

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 Taxable Services
Excess Collection Tax/FED
 Similar to Section 3B of ST and 11 of FE, Section 16 of Sindh, 17 of
Punjab and 33 of KPK Acts also provide that-
 Any amount of sales tax collected under a misapprehension of law or
otherwise
 Not payable as tax or which is in excess of the tax payable, and
 Incidence has been passed on to the consumer,
 Shall be payable to the Government.
 Such excess collected amount of tax shall be recovered accordingly
and no claim for refund in respect of such amount shall be admissible.
 Default surcharge and penalties applicable.

 The burden of proof that the incidence of tax has been or has not been
passed on to the consumer shall be on the person collecting the tax.

ACE Consultants Slide  24

 Taxable Services
Export of Services – Punjab Act
 Section 4(4) of Punjab Act provides that where a service originates from
the Punjab but terminates outside Pakistan, such person shall be
required to pay tax on such service to the Punjab Government.
 Chapter IV of the Punjab Sales Tax on Services (Adjustment of Tax) Rules,
2012 provides that –
 Providing of a taxable service by a registered person shall be treated as
export of service, and no tax is payable thereon, if -
 Such service is delivered and used outside Pakistan;
 Payment for such service is received in convertible foreign exchange
through declared banking channels; and
 Use, supply or consumption of any GOODS taxable under the ST Act is
treated as zero rated supply and entitled to refund under the ST Act?

 There is no concept of “export of services” in FE Act or any other Sales

Tax on Services Acts in Pakistan!

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 Exempt Services
Comparative list of Exempt Services
Section 16 read with Third Schedule to the FE Act provides -
 Services specified in the Third Schedule shall be exempt from FED.
 FBR is empowered to notify any exempt services under the ST Act.

Section 10 of Sindh, 12 of Punjab and 28 of KPK Acts provide -

 The SRB, PRA and KPRA with the approval of the Government, may-
a) exempt any taxable service from the whole or any part
b) exempt any service provided by a specific person or a class of persons
c) exempt any recipient of services or class of such recipients from tax
 The exemption may be allowed from any previous specified

 For Comparator list of services exempt from sales tax / FED

– See Handout - B

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 Sales Tax Invoice
Section 18 of FE, 23 of ST, 30 of Punjab, 47 of KPK Acts and Rule
29 of Sindh Rules, provides that
 A registered person rendering taxable services shall issue a sales tax
invoice.
 There is no format prescribed for sales tax invoice, but a tax invoice
should contain the following particulars:--
 A sales tax invoice should be serially numbered and dated
 Name, Address, Registration Number or NTN or CNIC of the service
provider and recipient.
 Description, Tariff heading and other details of services
 Value of services, Rate and amount of tax and value inclusive of tax.
 Boards/Authority may specify modified invoices for different persons

ACE Consultants Slide  27

Requirement of Registration
Under the FE, ST, Sindh, Punjab and KPK Act
 Under the Sindh, Punjab, KPK Acts, registration will be required for all
persons who:
a) are residents;
b) provide any of the services listed in the Second Schedule from their
registered office or place of business in Sindh/Punjab/KPK; and
c) fulfill any other criteria or requirements which the Board
 A person who receives a service, which is a taxable service by virtue of
Reveres Charge, and is not a registered person shall be deemed to be
a registered person
 Board shall publish on its web site a list of persons registered under
the Act.
 Under FE and ST Act, Every person rendering services liable to FED/
sales tax is required to be registered. Franchise Services

ACE Consultants Slide  28

Compliance Requirements
Retention of Records
 Every registered person would retain records for a period of
 of six years under FBR.
 of five years under Sindh, Punjab and KPK Acts.
 A service provider, rendering taxable services, shall required to
maintain tax records including-
 records of the invoices
 records of goods and services purchased or received
 quantity and value of the goods and services
 number of the supplier or seller or service provider
 Records of goods imported
 records of the documents including Debit and Credit Notes, returns and
statements etc.

ACE Consultants Slide  29

Reverse Charge
and
Other Issues
Reverse Charge - Person Liable to Pay Tax
Services liable to Sales Tax /FED under FE Act or PST Ordns
Person Liable To Pay Tax
Section 3(5)(c) of the FE Act further provides that
 Where services are rendered by the person out of Pakistan,
 the recipient of such services in Pakistan shall be liable to pay
Duty
 Only In Case of Franchise services rendered from outside
Pakistan
Section 3A of the ST Act provides that
 Federal Government may, specify, the goods/services in respect of
which the
 liability to pay tax shall be of the person receiving the
supply/services
 Presently No Such Services Is Prescribed
ACE Consultants Slide  31
Reverse Charge
Services liable Sales Tax under Sindh, Punjab and KPK Act
Reverse Charge in FED and ST Act
Section 3(2) of Sindh, Punjab and 19(2) of KPK Acts provides -
 A service that is not provided by a registered person shall be treated
as taxable service, if

 listed in the Second Schedule to the Act,

 Provided to a resident person

 By a non resident person

 In course of an economic activity

 Explanation: This sub-Section deals with services provided by non-
resident persons to resident persons

 Whether or not resident person is an end consumer of such services

ACE Consultants Slide  32

Reverse Charge
Services liable Sales Tax under Sindh, Punjab and KPK Act
 Where a person has
 A registered office or place of business in the Province, and

 Another outside the Province

 The registered office or place of business in the Province and

that outside the Province

 shall be treated as separate legal persons.

 The Board/Authority may, prescribe rules for determining the conditions

under which -

 A service or class of services will be considered to have been provided

by a person from his registered office or place of business in the
Province.

ACE Consultants Slide  33

Reverse Charge – Person Liable To Pay Tax
Services liable Sales Tax under Sindh, Punjab and KPK Act
Section 9(1) of Sindh, 11(1) of Punjab and 27(1) of KPK Acts
provides -
 Where a service is taxable by virtue of sub-Section (2) of Section 3,

 The liability to pay the tax shall be on the person receiving the
service.

 The Board/Authority may, specify the services or class of services in

respect of which the liability to pay tax shall be on

 the person providing the taxable service,

 or the person receiving the taxable service or

 any other person.

ACE Consultants Slide  34

Reverse Charge
Principles Of Origin in Certain Situations- Punjab and KPK
Section 4 of Punjab and 20 of KPK Acts provides certain
situations where following Principles of Origin or Reverse Charge
are Applicable –
1. Where a person is providing taxable services in a Province other than
the Punjab/KPK
• but the recipient of such services is resident of the Punjab/KPK or
• is otherwise availing such services in the Punjab/KPK and
• has charged tax accordingly,
• the person providing such services shall pay the amount of tax so
charged to the Government of Punjab/KPK.

2. Where the recipient of a taxable service is a person registered under

the Punjab /KPK Act,
• he shall deduct the whole amount of tax in respect of the service
received and pay the same to the GOP.

ACE Consultants Slide  35

Reverse Charge
Principles Of Origin in Certain Situations- Punjab and KPK
3. Where a person is providing taxable services in more than one
Province or territory in Pakistan including the Punjab/KPK,

 Such person shall be liable to pay tax to the Punjab/KPK to the extent

 the tax is charged from a person resident in the Punjab/KPK or

 from a person who is otherwise availing such services in the

Punjab/KPK.

4. Where rendering of a taxable service originates from the Punjab/KPK

but terminates outside Pakistan,

 such person shall be required to pay tax on such service to the

Punjab/KPk.

ACE Consultants Slide  36

Reverse Charge
Principles Of Origin in Certain Situations- Punjab and KPK
5. Where a taxable service originates from outside Pakistan but is
received or terminated in the Punjab/KPK,

 The recipient of such service shall be liable to pay the tax to the
Punjab/KPK.

6. The persons who are required to pay the tax to the Punjab/KPK in
terms of subsections (1), (2), (3), (4) and (5) above

 shall be liable to registration for purposes of Punjab/KPK Act and

rules thereunder.

ACE Consultants Slide  37

Requirement Of Registration
Recipient Of Taxable Services – Reverse Charge
Under Sections 24(3) of Sindh, 25(3) and 4(6) of Punjab and 41(3)
and 20(6) of KPK Acts
 A person shall be deemed to be a registered person and is liable to
be registered for the purposes of Sindh/Punjab/KPK Act, if
 Person is Resident of that Province, and
 Received taxable services from an unregistered non resident
person,

Rule 43A(1) of FE Rules requires

 Every person availing any right under a franchise (being franchisee) is
liable to register under the FE Act.

ACE Consultants Slide  38

Principles of Origin of Services
Reverse Charge – liability for payment of tax

Concepts of Reverse Charge

• In Cross border Transactions

• Export of Services – Zero rated
• On import of services
• Transfer of liability to pay
sales tax
• From the service provider
• To service recipient.

ACE Consultants Slide  39

Principles of Origin of Services Reverse Charge
Place of Taxation Issues and Disputes

Effects on Nature of Services

► Taxing Jurisdiction
► Taxable or Exempt
► Registration
► Liability of payment of
Tax
► Rate of tax

ACE Consultants Slide  40

Reverse Charge
Principles Of Origin in Certain Situations- Punjab and KPK
Services Services Taxable in Liability of Reverse
originated/ terminated/ Punjab/ payment of tax charge
provided from availed in KPK (Recipient of
Services Pay tax)

Punjab/KPK Punjab/KPK Taxable Service provider No

Punjab/KPK Out of Pakistan Taxable Service provider No

Out of Punjab/KPK Taxable Recipient of Yes

Punjab/KPK services
Out of Pakistan Punjab/KPK Taxable Recipient of Yes
services
Punjab/KPK Out of Non None No
Punjab/KPK Taxable

Out of Out of Non None No

Punjab/KPK Punjab/KPK Taxable

ACE Consultants Slide  41

Payment & Adjustment – Punjab Act
Recipient Of Taxable Services – Reverse Charge
Rule 6 of Adjustment of Tax of Punjab Rules provides

 The person liable to pay tax under above situations i.e.

 On the basis of principles of origin and reverse charge

 Shall deposit the whole amount of due tax without any deduction,
adjustment or credit.

 No input tax adjustment is admissible against output tax?

 Amount of tax so Reverse Charged is itself Input Tax?

 No Input Tax without valid sales tax invoice?

ACE Consultants Slide  42

Place Of Taxation Rules
Practical Issues
TRIPPLE taxation Multiple registrations No conflict resolution
• Example – Punjab Co. • Place of Business • For the common
imports goods and 47% Sales(offices) in Sindh and taxpayer there is no
acquires L/C services Punjab are to be treated
from a bank located in Tax as separate legal persons defined process for
Karachi. – can this work? dispute resolution in
• L/C Commission is case of applying
subject to FED, Punjab • To provide services in taxes on inter
ST and Sindh ST. Punjab, residents of province rendering of
Sindh need to be services.
• Therefore in order to registered with PRA as
comply with the law – well and vice versa –
increased administrative • The tax authorities
• The Bank will charge costs, compliance individually subject
Sindh ST @ 15% requirements & difficult services to tax without
for common tax payer to resolving conflicts of
• Punjab Co. will understand the law. interests and
reverse charge therefore the tax
Punjab ST @ 16% • Input tax adjustments in
case of inter provinces or payer without any
• The Bank will also Federal rendering of guidelines as to
charge FED @ 16% services. where to submit the
tax.

ACE Consultants Slide  43

 Sales tax on Services in Pakistan
Issues and Disputes
Presently, the scope of goods and services is not clearly
determined under the ST Act and the respective Provincial sales
tax legislation.
In certain cases it is overlapping including:
1. Intangible movable goods (i.e. software and other intangible
contents);
2. Supply of goods involving reasonable consumption of services
(i.e. restaurants, caterers, toll manufacturing); and
3. Mixed nature of contracts (i.e. turn-key contracts, civil works).

Due to such confusion in scope of goods and services, tax authorities

are trying to tax such activities being goods and services
simultaneously.

ACE Consultants Page  44

Sales tax on Services in Pakistan
Issues and Disputes

 Dispute over jurisdiction: In certain cases FBR has been demanding

tax on services that have been rendered and deposited in the Province.
 Taxing: Under FED and Sindh sales tax laws, sales tax on services is
chargeable at the point of origination of services and not on
consumption whilst PRA and KPK have adopted consumption based
charging of sales tax.
 Exemptions: List of exempt services vary from one jurisdiction to other.
e.g. Banking services.
 Export of Services; Export of service concept has been given in PRA
only.
 Harmonized Tariff Headings: Initially, Chapter 98 of Customs Tariff
has been used by all authorities, however, later on authorities
introduced new services with different tariff headings.

ACE Consultants Slide  45

Where to Pay Tax
Practical Issues - Franchise Services
 Franchise Services are liable to FED under the FE Act and taxable
under Sindh Act at 10% of value of services (single stage). Under the
Punjab Act it is taxable at 16%.
 Definition of Franchise is similar in three Acts–
• Franchise means an authority given by a franchiser
• under which the franchisee is contractually granted any right
• to produce, manufacture, sell or trade or otherwise deal in or do any
other business activity relating to goods or services or to undertake
any process identified with franchiser
• against a fee or consideration
• including royalty or technical fee whether or not any use of
trademark, service mark, trade name, logo, brand name or any such
symbol is involved.

ACE Consultants Slide  46

Where to Pay Tax
Practical Issues - Franchise Services
 In all of Four jurisdictions liability of payment of FED or sales tax is
on recipient of services i.e. Franchisee (reverse charge).
 In case where Franchisee and Franchiser are both based in same
jurisdiction (i.e. Pakistan, Sindh or Punjab) liability of payment of
FED or sales tax are on services provider i.e. Franchiser.
 FBR asked for payment of FED on any franchise services in Pakistan.
 SRB asked for payment of Sindh sales tax on any franchise services
by a resident of Sindh.
 PRA asked for payment of sales tax on any franchise services by a
resident of Punjab.
 PRA has taken a new stand that payment of tax on franchise
services should be distributed between all Jurisdiction on the
basis of turnover in related jurisdiction.

ACE Consultants Slide  47

Franchise Services
Current Issues
Currently an attempt is being made to view all
payments to non-residents as being franchise
payments

All technical fees or royalties do not necessarily

create a franchise arrangement

Allocation of franchise fee between the provinces is

an issue

FBR also regards franchise as federal levy under the

FED law

ACE Consultants Slide  48

Conflicting Clarification
On Contractual Execution of Work by SRB
 Persons engaged in contractual execution of work or furnishing of
supplies are subject to Sindh/Punjab sales tax.
Legal Interpretation
 Only those services fall under the head of “contractual execution of
work or furnishing of supplies” which involve both supply of goods
and rendering of taxable services under a contract.
 In effect only a composite contract involving an element of goods as
well as of taxable services would be taxed under the above heading.
 SRB confirmed such understanding by letter dated 23 Feb 2012
SRB’s Conflicting Stand
 SRB subsequently clarified, Contractual execution of work covers such
services as are not specifically described in the First Schedule and
are also not listed in the Second Schedule but are provided or
rendered or supplied under a contract.
ACE Consultants Slide  49
Specific Services Overview
Labour & Manpower Supply Services

Management of staff should be the basis to

determine the head under which the services
are taxable.

Reimbursement of salary and allowances on

actual basis is not to be included in the value
of services.

ACE Consultants Slide  50

Specific Services Overview
Business Support Services
 The term ‘Business Support Services’ is very widely defined and
almost every service provided in relation to business or commerce
seems to have been included in the definition.

 If all services are taxable under the definition of ‘Business Support

Services’ (BSS), then the Second Schedule listing of taxable
services becomes redundant.

Security Call Centers Provision of

Agencies have a separate office along with
services are PCT heading in utilities – rental
taxable under a the First for sharing of
separate head Schedule and business
9818.1000 are now included premises is
in the Second effectively
Schedule taxable

ACE Consultants Slide  51

Specific Services Overview
Toll Manufacturing

• Services of toll manufacturing

are now taxable under the
Provincial sales tax legislation
FBR has of Sindh and Punjab.
traditionally
recognized • As a result a new dispute has
persons arisen between the Federal
providing and Provincial tax authorities
services of toll whether persons providing
manufacturing as services of toll manufacturing
should be considered
‘manufacturers’ ‘manufacturers’ or ‘service
providers’. Currently they are
exposed to both taxes.

ACE Consultants Slide  52

Questions

ACE Consultants Page  53

 Adjustment of Input Tax
and Determination of Tax
Liability
Determination of Tax Liability
Input Tax – Definition under ST Act
Section 2(14) of the ST Act defines the expression “input tax” as-

“Input tax", in relation to a registered person, means-

• Tax levied under the ST Act on supply of goods;

• Tax levied under ST Act on the import of goods;
• FED paid on goods or services under FE Act in sales tax
mode.
• Provincial sales tax levied on services rendered or provided
• Tax levied under the ST Act, as adapted in the Azad Kashmir, on
the supply of goods received by the person;

 Through notification SRO 212(I)/2014 sales tax levied through the Sindh Act, Punjab Act and PST
Ordinances was declared as provincial sales tax for the purposes of input tax.
Sales tax levied through the KPK Act remains outside the scope of provincial sales tax for the
purposes of input tax.

ACE Consultants Slide  55

Determination of Tax Liability
Input Tax – Definition under Sindh Act
Section 52 of the Sindh Act defines the expression “input tax” as-
“Input tax“, in relation to a registered person, means-
a) tax levied under Sindh Act on the services received by the person;
b) tax levied under the ST Act, on the goods imported by the person;
c) tax levied under the ST Act, on the goods or services received by the
person; and
d) Provincial sales tax or Islamabad Capital Territory sales tax levied on
the services received by the person:
 SRB may specify, any or all of the aforesaid tax shall not be treated as
input tax for the purposes of this Act

 Punjab and KPK Acts have not defined the expression “input tax”

ACE Consultants Slide  56

Determination of Tax Liability
Section – 7 of the ST Act
 A registered person shall be entitled to deduct input tax paid or
payable
 In respect of taxable services made during a tax period
 For the purpose of taxable services rendered
 Input tax shall be adjusted from the output tax due in respect of
taxable services rendered during that tax period.
 Subject to provisions of Section 73 of ST Act.
 Input tax should be deducted from liabilities of same tax period.
 “Input tax not claimed in the relevant tax period may be
adjusted in the return for any of the six succeeding tax periods”

ACE Consultants Slide  57

Determination of Tax Liability
Section – 7 of the ST Act
 Claim of input tax is not permissible unless a registered person
holds:
1. In respect of local supply, a tax invoice bearing his name
and registration number
2. In respect of imports, a bill of entry or goods declaration
in his name and showing his registration number and duly
cleared under the Customs Act
3. In case of goods purchased in auction, a treasury challan
in his name and bearing his registration number and showing
payment of sales tax.

ACE Consultants Slide  58

Determination of Tax Liability
Section – 15 of Sindh, 16 of Punjab and 32 of KPK Act
 The Board/Authority, may allow registered persons to claim
adjustments or deductions,
 Including refunds arising as a result thereof,
 In respect of the sales tax paid on or in respect of any taxable
services provided by them.
 In respect of the tax paid under any other law on any account, in
respect of any taxable service or goods provided by them.
 Authority may adopt the principles or concepts laid down in
such other law in respect of adjustments, deductions or refunds
including zero-rating principle.
 It is clarified that no adjustment or deduction of any tax payable
under any other law shall be claimed by any person except in the
manner and to the extent specified in the notification.
ACE Consultants Slide  59
Determination of Tax Liability
Rules for Adjustment under the Sindh and Punjab Acts
A registered person shall be entitled to deduct/ adjust input tax
paid during the relevant tax period -
 for the purchase of goods or services used or consumed in
providing or rendering of taxable services
 holds a tax invoice in his name,
 bearing his sales tax registration /NTN,
 input tax should be deducted from liabilities of same tax period.
 “Input tax not claimed in the relevant tax period may be
adjusted in the return for any of the four succeeding tax periods”

 Only such portion of input tax available for adjustment that is

bifurcated / workout in relation to the services provided or
rendered in Sindh/Punjab and also taxed in Sindh/Punjab.

ACE Consultants Slide  60

Tax Credit Not Allowed
Section – 8 of the ST Act
A registered person shall not be entitled to reclaim or deduct
input tax paid on—
a) The goods or services used or to be used for
• any purpose other than for taxable supplies, made or to be
made by him.
b) Any other goods or services specified by the Federal
Government (SRO 490 of 2004) (f to i are same as 490)
c) Extra tax paid under Section 3 (5)
a) The goods/services in respect of which the sales tax has not
been deposited by the respective supplier.
b) Purchases indicated by CREST or supply chain
d) Fake invoices.
e) Purchases from persons not submitting required summaries

ACE Consultants Slide  61

Tax Credit Not Allowed
Rule 22A of Sindh and Rule 4 of Adjustment Rules of Punjab
 A registered person shall not be entitled to claim input adjustment in
respect of —
i. capital goods and fixed assets not exclusively used in rendering of
services;
ii. utilities bills not in the name of registered person unless evidence of
consumption is produced in the matter of such claims;
iii. goods and services received against false, fake, forged, flying untrue,
unreal or unrelated invoices or against purchases from the persons black
listed or suspended
iv. goods and services used or consumed in a service liable to a tax rate
lesser than the 16% or to a rate of tax not based on value;
v. Input tax paid on acquiring of a services liable to a tax rate lesser than
16% or to a specific rate of tax not based on value
vi. Further tax, extra tax and value added tax levied under ST Act.
vii.goods or services as are notified – Input related to reverse charge
ACE Consultants Slide  62
Tax Credit Not Allowed – Except Stock in Trade
SRO.490/2004 and Rule 22A of Sindh and 4 of Punjab Rules

gifts and give-aways

vehicles falling in food, beverages, and consumption on
Chapter 87 garments, fabrics, entertainment
etcetera

office equipment and

supply of building materials machines , furniture,
electricity and gas i.e. cement, bricks, structure, fixture and
to residential paints, varnishes, furnishings excluding
colonies distempers etc. those directly used in
taxable activity

electrical and gas wires, cables, ordinary crockery, cutlery,

appliances, pipes, electrical fittings and utensils etc.,
fittings, excluding sanitary fittings, excluding those
those directly used excluding those directly direct used in
in taxable activity used in taxable activity taxable activity

ACE Consultants Slide  63

Tax Credit Not Allowed
Apportionment of Tax Rules of ST, Sindh and Punjab Acts
 Registered person who makes taxable and exempt supplies
simultaneously is required to determine his claimable input tax in
the following manner-
1. Input tax paid on goods and services used/relating wholly to
taxable supplies shall be admissible under the law.
2. Input tax paid on goods and services used/ relating wholly to
exempt supplies shall not be admissible.
3. Input tax incurred /used in providing of taxable services and also
for non taxable or exempt services, shall be apportioned
according to the following formula for availing input tax adjustment-

Adjustable Input Tax Value of taxable services

on taxable services = ----------------------------------- x Residual Input Tax
(value of taxable + exempt services)

ACE Consultants Slide  64

Tax Credit Not Allowed
Apportionment of Tax Rules of ST, Sindh and Punjab Acts

 Such monthly adjustment of input tax shall be treated as

provisional and
 At the end of each financial year and a final adjustment should
be made on the basis of annual turnover of exempt and taxable
supplies.
 Any excess input tax adjustment on account of incorrect
application of formula shall be punishable under the respective
provisions of law.
 Suggestion : Apportionment should be applied on quarterly
or if possible on monthly basis.

ACE Consultants Slide  65

Certain Transactions Not Admissible
Section 73 of ST Act and Rules of Sindh and Punjab
 The buyer shall not be entitled to claim input tax credit,
adjustment or deduction, or refund, repayment or drawback or zero
rating of tax,
 If payment of the amount for a transaction exceeding the value
of fifty thousand rupees is not made -
• Through a crossed cheque drawn on a bank, or by crossed
bank draft or crossed pay order or any other crossed
banking instrument
• showing transfer of the amount of the sales tax invoice in
favour of the supplier
• from the declared business bank account of the buyer to
supplier
• Payment against utility bill are excluded in this context.
ACE Consultants Slide  66
Certain Transactions Not Admissible
Section 73 of ST Act and Rules of Sindh and Punjab
 An online transfer of payment from the declared business
account of the buyer to the declared business account of the
supplier or payments through the credit card shall be treated
as transactions through the banking channel,
 Transactions are verifiable from the bank statements of the
respective supplier and the buyer
 Payment in case of a transaction on credit is so transferred
within 180 days of issuance of tax invoice
 Supplier shall not be entitled to claim input tax credit,
adjustment or deduction or refund, repayment or drawback or
zero rating of tax, if amount so transferred shall not be
deposited in the declared business bank account of the
supplier.

ACE Consultants Slide  67

Debit and Credit Note - Section 9 of ST Act
Debit and Credit Note Rules of ST, Sindh and Punjab Act
 A registered person may issue a tax debit or credit note and
make corresponding adjustment against output tax in the return,
if the amount shown in the tax invoice or the return needs to be
modified, as a result and in the manner of –
 Cancellation or return of goods/services
 A buyer/ recipient of services shall issue a debit note to the
supplier/service provider, referring relevant invoice, and
describing quantity/part being returned or cancelled and change
in value and amount of tax with the reason.
 Change in the nature or value of supply/services
 A supplier/services provider issues a debit note in case of
increase in value or amount of tax and a credit note otherwise.
 A Note should be referred in the corresponding invoice and
should fulfill the requirement of a sales tax invoice.
ACE Consultants Slide  68
 Debit and Credit Note - Section 9 of ST Act
Debit and Credit Note Rules of ST, Sindh and Punjab Act
 Adjustment of Tax
 Where the buyer has already claimed input tax, he shall reduce or
increase the amount of input tax in respect of cancelled or returned
supply/services as mentioned in corresponding debit or credit note
through monthly sales tax return.
 When the supplier/services provider has already paid output tax,
he shall increase or decrease the amount of output tax as mentioned
by the corresponding debit note through monthly sales tax return.
 Adjustment which lead to change in amount of tax can only be made
if corresponding Note is issued within 180 days (90 days in Sindh)
of relevant supply. Commissioner may extend such period by a further
180 days.
 Goods returned being unfit for consumption are required to be
destroyed in supervision of a tax officer. Input tax disallowed.

ACE Consultants Slide  69

Carry Forward /Refund of Input Tax
Section – 10 of ST Act, Sindh and Punjab Rules
 Excess input tax against taxable services, may be carried
forward to the next period and shall be treated as input tax for that
period.
 FBR may prescribe the manner for refund of such excess input tax.
 Any tax refund of input tax shall be paid after the adjustment of any
tax liability, penalty or default surcharge payable.
 There is no bar of time for adjustment of excess input tax once
carried forward.

 Under Punjab Act, input tax not consumed during a tax period may
be carried forward for a period not exceeding four moths, where
after adjustment shall be admissible only on confirmation by audit.

ACE Consultants Slide  70

Refund to be claimed
Section – 66 of ST Act and Rule 23A of Sindh Rules
 Under section 66 of ST Act, a refund of tax due to any inadvertence,
error, misconception or an input adjustment not claimed, shall be
refunded on making application, within one year of the date of
payment or invoice.
 If input tax was not deducted within the relevant tax period, a
registered person may allow to take such adjustment in a specified tax
period.
 No refund is admissible if incidence of tax has been passed to the
consumer.
 Under Rule 23A of Sindh Rules, a sales tax amount may be refunded to
registered person in case of–
 excess amount of sales tax deposited erroneously or inadvertently
 amount of deposited by or recovered from the registered person is held
not payable, as result of an order of a court or an appellate forum.

ACE Consultants Slide  71

Declaration of Input and Output Tax
Sales Tax Return
 Every registered person is required to declare all taxable and exempt
services rendered during a tax period, and
 Taxable, exempt or zero rated services/ purchases or imports made
during a tax period.
 Liabilities determined after adjustments of valid input tax from output tax
payable, should be paid by the 15th of the month following the tax
period.
 Every registered person is required to file its monthly sales tax return
online with FBR, SRB, PRA and KPK. By the 18th of the following
month. However, different dates apply in the case of telecommunication
 Whilst an annual return for services is also required to be filed once a
year. In certain cases, quarterly sales tax returns are also required to be
filed. Annual returns are required to filed by 30 September
 Quarterly returns are required to be filed by 15th of the month following
the end of every quarter. Exempt and Franchise services providers
ACE Consultants Slide  72
Questions

ACE Consultants Page  73

 Sales Tax Withholding

Provisions under the ST Act,

Sindh Act and Punjab Act
Sales Tax Withholding In Pakistan
Under Federal ST , Sindh and Punjab Acts-
Sales Tax Withholding in Pakistan

Sales Tax Special Sindh Sales Tax Punjab Sales Tax

Procedure Special on Services
(Withholding) Procedure (Withholding)
Rules, 2007 (Withholding) Rules, 2012
Rules, 2014
[Federal WHT] [Sindh WHT] [Punjab WHT]

Issued by Issued by Issued by

FBR SRB PRA

ACE Consultants Slide  75

Sales Tax Withholding
Withholding Agents - Federal WHT
Federal WHT Rules shall apply on supply of
• Taxable Goods and
• Taxable Services ? (Provincial Ordinances, FED)

Persons specified as withholding agents

• Federal and Provincial Government departments;
• Autonomous bodies;
• Public sector organizations,
• Companies as defined under the IT Ordinance 2001, registered
for ST, FED or income tax purposes.
• Recipient of advertisement services, who are registered for
sales tax
• Persons registered as exporters
ACE Consultants Slide  76
Sales Tax Withholding
Withholding Agents – Sindh WHT
WHT Rules shall apply on providing of Taxable Services
Persons specified as withholding Agents
• Federal, Provincial Government, including local and district
government, departments and offices;
• Autonomous bodies;
• Public sector organizations
• Organizations which are funded, fully or partially, out of the
budget grants of the federal or provincial government;
• All companies (as define under Section 2(28) of the Sindh Act)
• Recipient of advertisement services, registered for Federal or
Sindh sales tax
• SRB registered persons receiving taxable services from
unregistered persons

ACE Consultants Slide  77

Sales Tax Withholding
Withholding Agents – Punjab WHT

WHT Rules shall apply on providing of Taxable Services

Persons specified as withholding Agents

• Federal, Provincial Government, including local and district
government, departments and offices;
• Autonomous bodies;
• Public sector organizations
• Organizations which are funded, fully or partially, out of the
budget grants of the federal or provincial government;
• Taxpayers as fall in the jurisdiction of LTU of the FBR for the
purposes of sales tax, FED or income tax; and
• Recipients of service of advertisement, who are registered
under the ST Act on goods or for Punjab Act.

ACE Consultants Slide  78

 Sales Tax Withholding Agents
Under the Federal ST , Sindh and Punjab Acts-
Federal WHT Agents Sindh WHT Agents Punjab WHT Agents
Federal and Provincial Federal and Provincial, Federal and Provincial,
Govt. departments local Govt. departments local Govt. departments
Autonomous bodies Public Autonomous bodies Public Autonomous bodies Public
sector org sector org sector org

- Organizations funded by Organizations funded by

All companies (as per
Income Tax Ord.) registered
for ST, FED or Income Tax
purposes
Recipient of advertisement
services, registered for
Federal sales tax
Persons registered as
exporters
Federal, Provincial Govt Federal, Provincial Govt
All companies (as per Taxpayers as fall in the
section 2(28) of the Sindh jurisdiction of LTU of FBR
Act) for sales tax, FED or
income tax
Recipient of advertisement Recipient of advertisement
services, registered for services, registered for
Federal or Sindh sales tax Federal or Punjab sales tax
SRB registered persons -
receiving taxable services
from unregistered persons

ACE Consultants Slide  79

Sales Tax Withholding
General Concepts
A withholding agent is required to withhold Sales tax from the
payments being made on -
• receipts of taxable goods;
• receipts of taxable advertisement services; and
• invoices of other taxable services.

On receipts of taxable goods or services from a registered

person, a withholding agent is required

• at the applicable rates of withholding

• of the total amount of sales tax shown in the tax invoice
• make payment of the balance amount
• Issuing a sales tax withholding certificate.
ACE Consultants Slide  80
Sales Tax Withholding
General Concepts………………….. Cont’d

On receipts of taxable goods or services from unregistered

person, a withholding agent is required

• To withheld /deduct sales tax

• at the applicable rate in Sindh and Punjab

• @ 1% in Federal ST

• Of the value of taxable supplies/services

• From the payments made

• Amount of sale tax, shall be worked out on the basis of gross

value of taxable supply.

ACE Consultants Slide  81

 Goods Exempt from Sales Tax Withholding
Federal WHT
 Following taxable goods are exempt from Federal sales tax
withholding:
1. Electrical energy and Natural gas
2. Petroleum products as supplied by petroleum production and
exploration companies, oil refineries and oil marketing companies
3. Mild steel products
4. Products made from sheets of iron or non-steel alloy, stainless steel
or other alloy steel, such as pipes, almarihs, trunks etc.
5. Paper, in rolls or sheets
6. Plastic products including pipes
7. Vegetable ghee and cooking oil
8. Goods specified in the Third Schedule
9. Supplies made by commercial importers who paid value addition tax
on such goods at the time of import.
ACE Consultants Slide  82
Services Exempt from Sales Tax Withholding
Federal WHT, Sindh WHT and Punjab WHT
 Following taxable services are exempt from sales tax
withholding
Federal WHT Sindh WHT Punjab WHT
• Telecom • Telecom • Services
• Banking Company provided by
• Financial Institution corporate sector
persons
• Insurance services
registered with
• Port Operator PRA (other than
• Airport Operator advertisement
• Terminal Operator services).
• Airport Ground • Telecom
Service Provider • Courier
• Insurance

ACE Consultants Slide  83

Sales Tax Withholding
Public Sector and Advertisement Services
Receipts of taxable advertisement services registered for
• Federal sales tax (Federal WHT)
• Sindh or Federal sales tax (Sindh WHT)
• Punjab or Federal sales tax (Punjab WHT)
• Either received from registered or unregistered person
• Withheld full amount of tax at applicable rate of tax

Public Sector withholding agent on receipts of taxable goods

or services
• From unregistered person, required to withheld full amount of tax at
applicable rate of tax
• From registered person, required to withheld
• 1/5 (20%) of amount of tax in Federal and Sindh
• Full amount of tax at applicable rate of tax in Punjab

ACE Consultants Slide  84

Sales Tax Withholding
As per the Federal WHT

Sales Tax Act, 1990 / FED / PST

All Companies / Exporters

On payments to

Other Registered Advertisement

Unregistered
Registered Wholesaler / service
persons
Persons Distributor / Dealer providers

Deduct 1/5th Deduct at

Deduct 1/10th
of Deduct 1% of
of amount of applicable
amount of total the value of
total Sales rate on value
Sales Tax (10%) Supply
Tax (20%) of Services
ACE Consultants Slide  85
Sales Tax Withholding
As per the Sindh WHT

Sindh Sales Tax on Services Act, 2011

All Companies and SRB Registered Persons

On payment to

Registered Advertisement Unregistered

Services Providers service providers persons

Deduct at Deduct at
Deduct 20% of the applicable rate applicable rate
value of services on value of on value of
Services Services
ACE Consultants Slide  86
Sales Tax Withholding
As per the Punjab WHT

Punjab Sales Tax on Services Act 2012

Persons falling in the jurisdiction of LTU

On payments to

LTU Registered and

Corporate Services Non-LTU Advertisement
Unregistered
Providers Non-corporate service
persons
registered with entity providers
PRA

Deduct whole amount of tax at

No Withholding
applicable rate on value of Services

ACE Consultants Slide  87

Sales Tax Withholding
General Concepts………………….. Cont’d

A Withholding agent registered for sales tax is required to

• Deposit withheld amount through declaring purchases in

monthly sales tax return. (either input tax is required to
be claimed or not)
• Withholding from unregistered persons will be declared in
single line.

A withholding agent not registered for sales tax is required to

• Be e-enrolled on e-portal of respective authorities

• File monthly withholding e-statement
• Deposit the withheld amount of sales tax.

ACE Consultants Slide  88

Sales Tax Withholding
General Concepts………………….. Cont’d

The Provincial sales tax authorities require that sales tax

be withheld from payments made to unregistered persons
for taxable services.

This creates
responsibility
on the service whether whether the
recipient to the service the jurisdictio
ascertain: is taxable service n in which
or not; provider the service
is liable to provider
be falls in.
registered
for sales
tax or not;

ACE Consultants Slide  89

Sales Tax Withholding
General Concepts………………….. Cont’d
Exposure for failure to Withhold Sales Tax
 No specific penalty – hence general penalty for non-compliance
of provisions of the law where no specific penalty has been
provided which is Rs. 10,000 or 3% of the amount involved

 Default surcharge unlikely if output tax has been deposited in time

by the service provider

 Recovery of the principal amount can be challenged on the

grounds of double taxation

ACE Consultants Slide  90

Sales Tax Withholding
Practical Issues !
 Whether sales tax withholding will be made against taxable
services rendered before issuance of Withholding Tax
Rules ?
 A withholding agent is required to advertise or give
notice that sales tax on purchases /services will be
deducted from payments ?

 Withholding on purchases/services received from

unregistered persons means whether
 not registered with relevant authority
 Or any tax authority ?

ACE Consultants Slide  91

Sales Tax Withholding
Practical Issues !
 Withholding is required to be made
 at the time of payment
 as per amount of tax or value mentioned on tax invoice
 WITHHOLDING ON ADVANCE PAYMENTS or Part
Payments?

 Time of payment of withholding and

 claim of input tax on purchases subject to withholding ?

ACE Consultants Slide  92

Sales Tax Withholding
Practical Issues !
 Generally, most of the service providers mention STR Number
or add the prefix S (for Sindh) or P (for Punjab) before their
NTN.
 In the event of not mentioning
 Can be confirmed, from registered persons verification
systems on website of relevant authority through online
NTN verification.

 Applicability of sales tax withholding while dealing with

unregistered persons such as
 Construction services, and
 Contractual services
ACE Consultants Slide  93
Sales Tax Withholding
Practical Issues !
 When acquiring taxable services which would be subject to
sales tax withholding,
 a registered person has to establish the jurisdiction of the
service provider initially, i.e. whether FBR or Sindh sales
tax withholding would be applicable or Punjab.

 TV Channel based in Lahore while recipient based in Sindh

but registered for goods with FBR.
 Treatment of withholding, input tax adjustment,
overlapping and potential issue !

ACE Consultants Slide  94

Sales Tax Withholding
Practical Issues !
 If you have no place of business in jurisdiction of a
Provincial Tax Authority i.e. Authority has no NEXUS TO
PERSON?
 Can Person refused to follow WHT Rules of such
authority?

 Person falling in jurisdiction of LTU in Provincial WHT Rules

 Person falling in jurisdiction every LTU or only LTU
located in jurisdiction of relevant Authority?

ACE Consultants Slide  95

Sales Tax Withholding
Practical Issues !
 Tax authorities reconcile sales tax withholding with Income
tax withholding !
 Withholding on a supply in income tax as goods, sales tax
withholding should also be on same line.

 A supplier or services provider is responsible to show sales

tax exemption or zero rating
 otherwise withholding is due
 Supplies by cottage industries, and
 Retailer below registration threshold.
 Supplies liable to income tax withholding would be
considered supplies from a wholesaler?
ACE Consultants Slide  96
Questions

ACE Consultants Page  97

SALES TAX ON SERVICES IN PAKISTAN

AND

SALES TAX WITHHOLDING RULES

CHARGING/ CLAIMING / WITHHOLDING

WORKSHOP CONDUCTED BY:
SAUD UL HASSAN
SENIOR MANAGER INDIRECT TAX
ERNST & YOUNG FORD RHODES SIDAT HYDER
0336 2551625
saud.hassan@pk.ey.com

27 JANUARY 2015