KPMG Taseer Hadi & Co. Chartered Accountants. Sales Tax on Services

Transcription

1 KPMG Taseer Hadi & Co. Chartered Accountants Sales Tax on Services SALES TAX 15 JUNE 2015

2 Con tents Highlight 1 Sindh Sales Tax on Services Significant Amendments New Services brought to tax Scope of Services Enhanced Punjab Sales Tax on Services Significant Amendments New Services brought to tax Scope of Services Enhanced This Memorandum contains a summary of changes proposed in the Sindh Sales Tax Act and Punjab Sales Tax Act through the Provincial Finance Bills for The Memorandum contains the comments, which represent our interpretation of the legislation, and we recommend that while considering their application to any particular case, reference be made to the specific wordings of the relevant statutes.

3 Highlight Sindh Sales Tax Standard rate of tax proposed to be reduced from 15% to 14%. of tax on telecommunication services to be decreased from 19.5% to 18%. Sales tax rate on services of program producers and production houses to be reduced from 10% to 6%. Lowest slab of tax rate to be enhanced from 5% to 6%. 16 new services to be brought into tax net at standard or reduced rate. Punjab Sales Tax Sales tax rate continues to be New services brought to tax ambit including air travel services, where FED is already applicable Scope of tax enhanced in numerous services through amendments proposed in Second Schedule PRA to be empowered to levy tax through rules and circulars. Statutory period of retention of records enhanced from 5 to 6 years Levy of tax through broadening of the definitions proposed. Levy of tax through withdrawal of exemption on Utility Bills Collection proposed. Power of SRB officers enhanced. Penalties in certain offences enhanced. Right of appeal against suspension of registration introduced. Sales Tax on Services

4 Sindh Sales Tax Significant Amendments Reduction in tax rates Standard rate of sales tax is proposed to be reduced from 15% to 14%. Further, reduction in following sales tax rates have been announced which shall be notified through notification: Existing Tax Proposed Corporate law consultants Services of inter-city transportation or carriage of goods by road, pipeline or conduit Tax Existing Proposed 5% 6% 5% 6% Telecommunication Services Services provided by program producers and production houses 19.5% 18% 10% 6% New services brought to tax net Following new services are proposed to be inserted in Second Schedule and taxable at standard rates: Sales Tax rates enhanced Sales tax rates on following services are proposed to be enhanced under Second Schedule and through notification: Tax Existing Proposed Other tracking services 15% 18% Security alarm services 15% 18% Services provided or rendered by laboratories other than the services relating to pathological, radiological or diagnostic tests of patients. 14% Credit rating agency * 14% Futures brokers * 14% Underwriter * 14% Indenters * 14% Legal practitioners and consultants 5% 6% Commission agents * 14% Accountant and auditors 5% 6% Tax consultants 5% 6% Construction services 5% 6% Packers and movers 14% Erection, commissioning and installation services * Technical inspection and certification services, including quality control 14% 14% 2 Sales Tax on Services

5 certification services and ISO certifications * Valuation services, including competency and eligibility testing services. * New services are proposed to be defined. 14% Following new services are also proposed to be inserted in Second Schedule which shall be notified at the following reduced rates. Travel agents * 10% Renting of immovable property * services excluding Renting of immovable property by a religious body to another religious body. Renting of vacant land or premises solely used for agriculture, farming forestry, mining, etc. Renting of land or premises solely used for outdoor sports Renting of buildings solely used for residential or hostels of a recognized educational institutions. Renting of immovable property by hotels, motels, guest houses, etc. liable to tax under heading % Auctioneers * 10% Dredging or desilting services * 10% Ready mix concrete services * 6% Intellectual property services * 10% * New services are proposed to be defined. Scope of services enhanced Scope for taxation of following services proposed to be enhanced by amending definitions: Advertising agent to include Media buying house. Share transfer agent to include Share depository agent and services in relation to transfer or redemption of derivatives Exemption for collection of utility bills withdrawn Banks, NBFC and NADRA Technologies Ltd were exempted from levy of sales tax on Utility Bills Collection under SRB notification dated 18 June It is proposed to withdraw this exemption with effect from 1 July, 2015 through notification. Minimum tax liability Upon failure to file return on due date or fail to furnish any information, etc., an officer of SRB not below the rank of Assistant Commissioner is empowered to make assessment and determine the minimum tax liability of a registered person. However, final tax shall be determined as a result of audit or special audit or forensic audit. Power of SRB officers enhanced Presently, the power to suspend the registration of a person rests with the Board. The Bill proposes to empower any officer of SRB, Sales Tax on Services

6 subject to the authorization of the Board, to suspend the registration of a person. Further, the Bill proposes to allow an appeal before Commissioner (Appeals) in the case of suspension of registration. Offences Any bank fails to attach or delays in attaching the bank account. Penalties Higher of Rs. 100,000 or double the amount of tax sought Audit by Special Audit Panels The Bill proposes introduction of special audit panel where the Board may appoint audit panels comprising of two or more members from the following: An officer of the SRB Chartered Accountants Cost and Management Accountants Any other person appointed by the Board Such audit may be carried out jointly with the FBR or other provincial sales tax authorities. Under each special audit, officer of the SRB shall act as chairman of the audit panel. Penalties enhanced Following penalties are proposed to be introduced: Offences Any person fails to intimate any change in the particulars of registration. Any person obstructs the entry of the SRB officer for monitoring Any person violates any embargo placed on the economic activity. Penalties Upto Rs. 100,000, subject to minimum penalty of Rs. 10,000 Higher of Rs. 100,000 or twice the amount of minimum tax Higher of Rs. 100,000 or an amount of the tax sought Any person contravenes any of the provisions of the rules or notification. Higher of Rs. 50,000 or double the amount of tax sought Obligation to produce documents and provide information Presently, the power to require document or information which are only being maintained under Sindh ST Act. The Bill proposes to empower SRB officer to require from any person to also produce records being maintained under any other law for the time being in force. Recovery of arrears of tax through banks Presently, the SRB officer is empowered to only attach the bank account of the person. Now, the Bill proposes to further empower SRB officer to require from the bank through notice to not only attach the bank account of the person but also remit the amount sought to be recovered. The SRB officer is also empowered under the proposed Bill to place an embargo on the economic activity of the person till the amount of tax is paid or recovered. 4 Sales Tax on Services

7 Punjab Sales Tax Significant Amendments Sales tax rate continues to be Standard rate of Punjab Sales Tax (PST) continues to be on taxable services listed in Second Schedule to Punjab Sales Tax on Services Act, 2012 [Punjab Act]. New services brought to tax ambit Following services are proposed to be inserted in Second Schedule and taxable at standard rate: Services in relation to transport of goods other than water, through pipeline, conduit or any other medium (other than inland carriage of goods by road otherwise taxable or chargeable to tax as such) Services provided by accountants (including practicing chartered or cost accountants), auditors, actuaries, tax consultants (by whatever name called), practicing company secretaries, receivers, liquidators, auctioneers and corporate law consultants, whether individual or otherwise. Domestic transportation of goods by air (other than courier services otherwise taxable or chargeable to tax as such) Chartered flights services within or originating from Punjab Debt collection and similar other recovery services Service provided by person for intercity carriage of goods by rail or road excluding Service provided by an individual owner of a vehicle for carriage of goods Services in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances. Public relation services including communication services and services provided by public relations of media management businesses, communication specialists, media researchers, and services provided by opinion poll agencies. Supply chain management or distribution (including delivery) services Services provided by photography studios and event or occasion photographers/film makers excluding Non corporate (individuals) photographers operating from small road-side shops declared as such by the Authority. Visa processing services including advisory or consultancy services for foreign education or for migration, visa application filing, services provided by document collection centers and subsequent assistance in visa processing (including all ancillary services) Sales Tax on Services

8 Sponsorship services Scope of services enhanced / amended Following new services are also proposed to be inserted in Second Schedule which shall be notified at the following reduced rates. Facilities for travel (by air): Catering services Scope of catering services is enhanced to include ancillary or allied services such as floral or other decoration, furnishing of space whether or not involving rental of equipment and accessories. services provided or rendered in respect of travel by air of passengers embarking from Punjab for air travel or journey within the territorial jurisdiction of Pakistan Advertisement services The exclusion of advertisement services on television and radio financed out of funds provided by Government under an agreement of foreign grant-in-and is proposed by substitution. Long routes Short routes Explanation: - For the purpose of this entry long routes means journey exceeding 500 kilometers and short routes means the remaining journeys. services provided or rendered in respect of travel by air of passenger embarking from Punjab for international air travels for journey: 2,500/ti cket 1,500/ti cket Courier services The scope of courier services is proposed to be enhanced to include express cargo or logistic services. Franchise services The Franchise services is proposed to include licensing services. Construction services The exclusions available to the following are proposed to be abolished: Economy and economy plus 5,000/ ticket Construction projects of value exceeding Rs 50 million Exclusion: Club, business and first class Air travel services provided to Hajj or Umrah passengers, diplomats and supernumerary crew. 10,000 / ticket Construction of industrial zones and other organizations exempt from income tax Residential construction projects where construction services are provided to construct more than one house or more than one apartment building 6 Sales Tax on Services

9 Property developers/promoters The bill proposes to bring in builders in the tax net. Personal care The scope of services pertaining to personal care is proposed to be enhanced to include salons, spas (including saunas, Turkish baths and Jacuzzi) and similar other establishments and hair transplants. However, the exclusion has been limited to parlor, salon and clinic where the facility of air-conditioning is not installed or is not available in the premises on any day of the financial year. Freight forwarding agents The sales tax in case of Freight Forwarding Agents is proposed to be increased from Rs 400 to Rs per bill of lading IT services The scope of IT services is proposed to be massively enhanced to include Information technology-enabled or information technology based services including software development, software customization, software maintenance, system support, system assembly, system integration, system designing and architecture, system analysis, system development, system operation, system maintenance, system up-gradation and modification, data warehousing or management, data entry operations, data migration or transfer, system security or protection, web designing, web development, web hosting, network designing, services relating to enterprise resource or management planning (including marketing of products}, development and sale of smart phone applications or games, graphics designing, medical transcription, remote monitoring, telemedicine, insurance claim processing, online retrieval and database access or retrieval service Other consultants The scope of services provided by other consultants is proposed to be enhanced to include whole range and variety of services provided by event managers, evaluation services, certification, verification and equivalence services, marketing or sales services (including marketing agencies and online marketing or sales services), surveyor services, training or coaching services (other than general education services). Share registrar The scope of services provided by share registrars is proposed to be enhanced to include services pertaining to issuance of shares. Furthermore, investor account services, trustee or custodial, share registrar services and their allied or connected services pertaining to transfer of shares, securities and derivatives have also been brought into the tax ambit. Fashion designer The scope of services provided by fashion designers is proposed to be enhanced to include use of brand name, logo or house mark (whether or not registered in the manufacturing or trading of products) Architect and town planners The scope of services provided by town planners is proposed to be enhanced to include landscapers and land scape designers. Rent-a-Car The scope of services provided in respect of rent a car is proposed to be enhanced to Sales Tax on Services

10 include renting of all categories of vehicles meant for transportation of persons Medical laboratories The bill proposes to restrict the exclusion provided in respect of services relating to pathological or diagnostics tests done by laboratories only to tests specifically pertaining to medical treatment purposes. PRA empowered to appoint Special Auditors Section 34 empowers Punjab Revenue Authority (PRA) to appoint Chartered Accountants and Cost & Management Accountants for conducting special audit of record of a registered person. The bill now seeks to empower PRA to appoint the professional accountants to conduct a Special Audit and Forensic Audit. Power to levy sales tax through rules / circulars The Bill proposes to empower PRA to levy sales tax through rules and circulars. Presently, Government of Punjab is empowered to levy sales tax through notification. Penalties enhanced The bills proposes to change the penalty as follows: Under Sr. No. 5 following penalties are proposed to be introduced in case a person fails to produce record or information despite receipt of notice. Rs. 25,000 First default Incentive to promote tax culture The Bill proposes to empower PRA (subject to approval form the Provincial Government) to prescribe prize schemes to encourage the general public to make purchases only from registered persons issuing tax invoices. Reward for Whistleblowers The Bill proposes to introduce a new concept of whistleblower, who is proposed to be the one who reports cases of concealment, evasion of sales tax or fraud leading to detection or collection of the tax The Bill seeks to propose rewards for whistleblower, however, the procedures for claim of such reward are expected to be prescribed. Rs. 50,000 each subsequent default Under Sr. No. 1, minimum penalty is proposed to be enhanced from Rs. 10,000 to Rs. 100,000 for the Company and from Rs. 10,000 to Rs. 50,000 for a person other than Company in case of non-compliance of compulsory registration. Time of retention of records enhanced The bill proposes to extend the period of retention of record from 5 to 6 years. 8 Sales Tax on Services

11 An Economic & Budget Commentary Offices in Pakistan Karachi Office Sheikh Sultan Trust Building Beaumont Road Karachi Phone +92 (21) Fax +92 (21) Lahore Office 2 nd Floor, Servis House 2-Main Gulberg, Jail Road Lahore Phone +92 (42) Fax +92 (42) pk-fmlahore@kpmg.com Islamabad Office Sixth Floor, State Life Building Blue Area Islamabad Phone +92 (51) Fax +92 (51) pk-fmislamabad@kpmg.com The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. The KPMG name, logo and cutting through complexity are registered trademarks of KPMG International Cooperative ( KPMG International ). kpmg