KPMG Taseer Hadi & Co. Chartered Accountants Sales Tax on Services Provincial Budgets 2014-15 SALES TAX 18 June 2014
Contents Page No. Sindh Sales Tax - Significant Amendments - New Services brought to tax 2 4 Punjab Sales Tax - Significant Amendments - New Services brought to tax 6 7 This Memorandum contains a summary of changes proposed in the Sindh Sales Tax Act and the Punjab Sales Tax Act through the Finance Bill for 2014-15. 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. 1
Sindh Sales Tax Significant Amendments Reduction in Standard Rate Standard rate of Sales Tax is proposed to be reduced from 16% to 15%. However existing rate of 19.5% on telecommunication services to be continued. Tax rate on certain services increased from 4% to 5% Sales Tax on services of legal practitioners, consultants, accountants & auditors, tax consultants and construction contractors is proposed to be increased from 4% to 5%. Companies to file audit reports It is proposed that the companies will be required to submit a printed copy of the annual audited accounts to the Assistant Commissioner, Sindh Revenue Board within 60 days of the date of audit report. Rate of penalty enhanced Rates of penalty for non-maintenance of records, failure to comply with SRB s notifications/rules, etc. are proposed to be enhanced from Rs.5,000 to Rs.10,000 and from 3% to 5%. Appeal fee enhanced Appeal fee for filing of appeal to the Commissioner (Appeals) is proposed to be enhanced from Rs.1,000 to Rs.2,000 for companies and from Rs.200 to Rs.1,000 for non-corporate persons. Qualification of Judicial Member It is proposed that a Judge of Sindh High Court or District & Session Judge having at least 2 years of service as District & Session Judge can be appointed as Judicial Member of the Appellate Tribunal. It may however be noted that Appellant Tribunal has not yet been constituted by the Government of Sindh. Undecided appeals by the Commissioner (Appeals) The Bill proposes to substitute Sections 59(7) & 59(8), whereby the Commissioner (Appeals) is proposed to be authorized to transfer the undecided appeals to the Appellate Tribunal attaching a report explaining the circumstances and reasons for not deciding the appeal within the prescribed time limit. The Commissioner (Appeals) would need to intimate the appellant as well as Chairman, SRB. This is a very significant proposal in line with the PRA s sales tax laws. However, this may deprive the appellant from the benefit of one appeal forum. SRB s power enhanced SRB is to be empowered to make rules, assign liability to pay tax, allow input tax adjustments or exempt the levies of default surcharge & penalty without approval of the Government of Sindh. Accordingly, amendments are proposed in Sections 3(4), 9(3), 15, 45 and 72 of Sindh Act. Records maintainable in Sindhi Statutory records can also be maintained in Sindhi. Presently, the records can be maintained in either English or Urdu. 2
Sindh Sales Tax Significant Amendments Withholding Rules The amendments are also proposed in the Sindh Sales Tax Special Procedure (Withholding) Rules, 2011, whereby the service recipient who is either non- resident in Sindh and/or not having a place of business in Sindh would not be required to deduct and pay withholding sales tax. The payment of such tax would be the responsibility of recipient of services within the Province of Sindh. Exemptions withdrawn Various services defined The new services brought to tax net are proposed to be defined, which inter-alia include maintenance or cleaning services, labour and manpower supply services, real estate, recruiting agent, securities, share transfer agent, technical, scientific & engineering consultants, transportation or carriage of goods, technical testing and analysis, registrar to an issue, interior decorator, hospital & clinics, education services, etc. The premium for life insurance and health insurance are no longer be exempt from Sindh Sales Tax, except where the premium on personal / individual life insurance is upto Rs. 500,000. Thus, premiums exceeding this threshold would attract Sindh Sales Tax at the rate of 15%. Exemption allowed to the property developers or promoters on construction services (9824.0000) is proposed to be withdrawn. Conditions of exemption revised Beauty parlours / clinics having annual turnover of Rs. 3.6 million are exempt. This exemption will be subject to further conditions to be notified by SRB. Internet and broadband services valued at less than Rs.1,500 per subscriber per month are exempt. The condition of upto 2 MBPS shall be added to the existing threshold. 3
New Services brought to tax 1. Following services are proposed to attract Sindh Sales Tax at 15% Services provided by tour operators excluding Hajj & Umrah tour package. Manpower recruiting agents. Share transfer agents. Purchase or sale or hire of immoveable property. laundries and dry cleaners (taxable if these located in hotels, clubs and guest houses; or are franchisers or franchisees; or are having branches or more than one outlet). Interior decorators. Call centres. Medical and dental practitioners and consultants. Technical testing and analysis service. Services provided or rendered or rendered by a registrar to an issue. Workshops for electric or electronic equipments or appliances, etc., including computer hardware excluding small workshops having annual turnover not exceeding Rs. 3.6 million. 2. Following services are proposed to attract Sindh Sales Tax at 10% Services provided by property dealers. Services provided by car or automobile dealers. Services provided by technical, scientific and engineering consultants. Rent-a-car and automobile rental services. Cable TV operators excluding cable TV operators having PEMRA s R category license. Fumigation services excluding public health fumigation services provided by the Federal, Provincial or Local Governments and Cantonment Boards and agricultural services. Maintenance and cleaning services excluding maintenance and cleaning of private residential houses or apartments or if not out-sourced. Janitorial services excluding those not outsourced by the owner. Programme producers and production houses. fashion designers. Car/automobile washing or similar service stations excluding car / automobile washing or similar service stations, having turnover less than Rs. 3.6 million in a financial year. 4
New Services brought to tax 3. Following services are proposed to attract Sindh Sales Tax at 5% pathological laboratories. medical diagnostic laboratories including clinical and radiological laboratories, X-Rays, ultra-sound, CT Scan, MR Imaging, etc. corporate law consultants. hospitals and clinics excluding those where fee / changes does not exceed the prescribed thresholds. persons engaged in inter-city transportation or carriage of goods by road or through pipeline or conduit. Advertisement in newspapers and periodicals. Education services if the monthly, trimester, semester, and annual fee based on courses / subject fees exceed the following thresholds: Period Fee per subject / courses Fee per total subjects / courses Per month basis 2,000 5,000 Per trimester basis 6,000 15,000 Per semester or 4 months basis Per semester exceeding 4 months 8,000 20,000 12,000 35,000 Annual fee 24,000 60,000 However, above exemption may not apply on education services provided or rendered in air-conditioned areas like classrooms, lecture rooms, coaching rooms, seminar rooms / halls or hotels or motels and the institution which is franchiser or a franchisee. 5
Punjab Sales Tax Significant Amendments No change in existing rate of 16% Standard rate of Punjab Sales Tax continues to be 16% on taxable services listed in Second Schedule to Punjab Sales Tax [PST] on Services Act, 2012 [Punjab Act]. Recovery of tax within 5 years Time limitation of 3 years for recovery of tax not levied or short levied is proposed to be enhanced to 5 years under Section 52 of Punjab Act. Powers of civil court assigned to PRA A new sub-section is proposed to be inserted in Section 70 to empower Punjab Revenue Authority or its officers to exercise powers of civil court in pursuit of recovery of tax arrears in view of the provisions of Code of Civil Procedure, 1908. Penalty for non-registration enhanced Exemption threshold for construction services The Bill seeks to add the words per annum to clarify exemption threshold applicable for construction services under Second Schedule, which means that the threshold of Rs 50 million for construction projects is to be taken on overall projects during a financial year. Financial Services Owing to dispute with regard to the scope of financial services, entry relating to financial services is proposed to be substituted in order to bring clarity. The proposed amendment would now be: Services provided by banking companies, cooperative financing societies, modarabas, musharikas, ijarahs, leasing companies, nonbanking financial institutions and other persons, businesses or enterprises providing or dealing in any such services. Penalty for not obtaining registration is proposed to be enhanced from Rs.10,000 to Rs.50,000, which would hence be Rs. 50,000 or 5% of the tax involved, whichever is higher. Scope of franchise services enhanced The Bill seeks to enhance the scope of taxation under the head franchise services to cover intellectual property rights services. This would likely enhance the scope of franchise services on copyrights, patents, etc. and may have a substantial impact on taxpayers. 6
New Services brought to tax Following services are proposed to attract Punjab Sales Tax at 16% Services provided by specialized workshops or undertakings (auto workshops; workshops for industrial machinery, construction and earth moving machinery or other special purpose machinery etc.; workshops for electric or electronic equipment or appliances etc. including computer hardware; car washing or similar service stations and other workshops) Services provided for specified purposes including fumigation services, maintenance and repair (including building and equipment maintenance and repair including after sale services) or cleaning services, janitorial services, dredging or desilting services and other similar services etc. Brokerage (other than stock) and indenting services including commission agents, underwriters and auctioneers Services provided by laboratories other than services related to technological or diagnostic services for patients Services provided in specified fields such as healthcare, gym, physical fitness, indoor sports, games and body or sauna massage etc. Services provided by laundries and dry cleaners Services provided by cable TV operators Scope of services proposed to be extended in existing entries of Second Schedule, also to attract Punjab Sales Tax at 16% Race clubs Cargo services by road passenger transportation business and transportation through pipe line and conduit services Cafes, food (including ice-cream) parlors, coffee houses, coffee shops, degas, food huts, eateries, resorts and similar cooked, prepared or ready-to-eat food service outlets etc. Intellectual property rights services Investment management services Technical inspection and certification services, quality control (standards' certification), technical analysis and testing, erection, commissioning and installation services. Other consultants including but not limited to human resource and personnel development services, exhibition or convention services, event management services, valuation services (including competency and eligibility testing services), market research services and credit rating services. Travel agents including all their allied services or facilities (other than Hajj and Umrah) Labor and manpower supplies. Services provided by TV or radio program producers or production houses 7
New Services brought to tax Services provided by depository agents including services provided through manual or electronic book-entry system used to record and maintain securities and to register the transfer of shares, securities and derivatives. Services by Realtors Services provided by fashion designers whether relating to textile, leather, jeweler or other product regimes including allied services such as cutting, stitching, printing, manufacturing, fabrication, assembly, embellishment, adornments, display (including marketing, packing and delivery etc.) Services by automobile dealers Industrial and commercial packaging services and similar outsourcing of industrial or commercial processes Modarabas, Musharikas, Ijarahs, leasing companies, etc. Services listed below would attract Punjab Sales tax at the following rates: Call centres Advertisements (including classified ads) in newspapers, magazines, journals and periodicals 19.5% 5% 8
Offices in Pakistan Karachi Office Sheikh Sultan Trust Building Beaumont Road Karachi 75300 Phone +92 (21) 3568 5847 Fax +92 (21) 3568 5095 email pk-fmkarachi@kpmg.com Lahore Office 2 nd Floor, Servis House 2-Main Gulberg, Jail Road Lahore 54000 Phone +92 (42) 3579 0901-6 Fax +92 (42) 3579 0907 email pk-fmlahore@kpmg.com Islamabad Office Sixth Floor, State Life Building Blue Area Islamabad Phone +92 (51) 282 3558 Fax +92 (51) 282 2671 email pk-fmislamabad@kpmg.com www.kpmg.com.pk 2014 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International Cooperative ( KPMG International ).