Slide 1
Workshop on Sales Tax Laws on ServicesPart 1 Provincial
Withholding Sales Tax on Services (SST & PST)
Asif S. Kasbati, FCA, FCMA & LLBHead of Group Taxation &
Legal AffairsGatron Group of Companies
Ex-Director Tax ServicesA. F. Ferguson & Co.
PTBA & KTBA - March 21, 2014
At Marriott Hotel, Karachi1
1INDEXProvincial Withholding Sales Tax in Sindh &
PunjabExemption and Reduced rates in SST & PSTFederal
Withholding Sales Tax23
CONCEPT in SST and PSTWithholding Sales Tax is envisaged on
acquiring taxable services falling under the Second Schedule
Other services are not subject to WHT 4Withholding
Agents1.Federal and Provincial government, local and district
governments;
2.Autonomous bodies;
3.Public sector organizations, public corporation, state owned
enterprises and regulatory bodies;
4.Organizations funded wholly or partly out of budget grants of
Federal and Provincial Government;
5.Taxpayers falling in the jurisdiction of Large Taxpayers Unit
of Inland Revenue registered for sales tax, federal excise duty and
income tax; and
6.Recipients of advertisement services registered with Federal
Board of Revenue for goods or with Sindh Board of Revenue for
services.
5Withholding Sales Tax SST & PSTService Recipient
(withholding agents)Service ProviderNature of ServicesRate of WHT
under SSTRate of WHT under PSTReference to SSTR & PSTRPerson
registered in LTU and Govt Organization.
Unregistered personAny taxable services 100% of Sales Tax100% of
Sales Tax3(3) / 5Person receiving advertisement services
(Registered whether in LTU / RTO for goods or SRB / PRA)
Person providing advertisement services.Advertisement
services100% of Sales Tax100% of Sales Tax
3(4) / 6Govt. OrganizationRegistered service providerAny taxable
services except advertisement1/5th of Sales tax100% of Sales
Tax
3(2) / 4Person registered in LTURegistered person in RTO
Any taxable service except advertisement1% of value of
supplyAmount of ST mentioned on Invoice
3(4A) / 7(1)6MECHANISM (cont..) SSTR 3(3) & 3(4) / PSTR 5
& 6Persons registered in LTU and Govt. Organizations acquiring
any taxable services from unregistered person AND Persons receiving
advertisement services:Illustration
7Rupees(Taxable services from unregistered person)Value of
taxable services including sales tax1,000Sales tax to be withheld
@16% (Rs 1,000 X 16% 116%)(138)Balance amount payable to
unregistered service provider (Rs1000 less Rs 138)862MECHANISM SSTR
3(2) / PSTR 4Govt. Organizations, on receipt of any taxable
services (except advertisement services) from registered service
provider:Illustration
8SSTPSTValue of taxable services excluding sales tax
1,0001,000Sales tax chargeable @ 16%160160Sales tax to be deducted
by the withholding agents (1605)32160Sales tax payable by the
withholding agent (160-32)128-Balance amount payable to the service
provider1,1281,000MECHANISM (cont..) SSTR 3(4A) / PSTR 7(1)Person
registered in LTU, on receipt of any taxable services (except
advertisement services) from registered service
providers:9SSTPSTValue of taxable services excluding sales
tax1,0001,000Sales tax chargeable @16%1601601,1601,160Sales tax to
be withheld (10) (160)Balance amount payable to the service
provider1.1501,000Illustration CERTIFICATEA certificate of tax
deduction under SST / PST is also required to be furnished to the
service provider as per Rule 3(9) / 10 on Form SSTW-06 / PST -
format of certificate is not yet prescribed
10Increase in list of Taxable Services Continuous tax burden on
us
11PENALTY AND DEFAULT SURCHARGEPenalty- Varying penalties as
provided under Section 43/48 of the SST/PST at serial nos. 2, 3 or
12. The exposure ranges from Rs. 5,000 to Rs. 10,000 and 3 to 5% of
the amount of the tax involved.Default Surcharge- SST S.44&PST
S.49(a)General : @ Inter-Bank Rate plus 3% per annum of the amount
of tax due; and(b)If default is on account of Tax Fraud: @ 2% per
month, of the amount of tax evaded, till such time the entire
liability including the amount of default surcharge is paid.
12Part 2 Exemptions and Reduced ratesExemptions - SSTExemptions
under Notification no. SRB-3-4/7/2013 dated June 18, 2013 subject
to conditions thereinTariff HeadingServices9801.2000 &
9801.5000 Restaurants and caterers having turnover not exceeding
3.6M Subject to conditionsRespective headings under
98.02Advertisement through grant-in-aid9809.0000 Services by NADRA
for utility bills collectionRespective headings under 98.13Banks
and NBFC for Hajj and Umrah , cheque book and others14Exemptions -
SSTTariff HeadingServices9801.3000Services rendered by marriage
halls9802.4000 advertisement in newspaper and
periodicals9810.0000hair cutting salons and beauty
parlors9813.1400/9813.1500/9813.1600Insurance15Exemptions -
SSTTariff HeadingServices9801.4000 & 9801.6000 Services
provided by clubs to its members and charges received as security
deposit9809.0000Contractual execution of work98.12
Telecommunication and internet service charges9820.1000Auto
workshop and authorized service stations9824.0000Specified
construction services1617Exemptions - PSTExemptions under the
Second Schedule of PST - subject to conditions thereinTariff
HeadingServices9802.1000 & 9802.2000 Advertisement sponsored by
an agency of the FG/PG / financed out of funds by Government under
grant-in-aid / conveying public service message98.12, 9857.0000 and
9858.0000Internet services and charges for international leased
lines98.13Marine, life, health and crop insurance9824.0000 and
9814.2000Specified construction services18Exemptions - PSTTariff
HeadingServices9807.0000Actual purchase value or documented cost of
land9809.0000Contractual execution of work or Furnishing
supplies9813.9000 and 9819.2000Value of currency in respect of
services provided by foreign exchange dealer9810.0000, 9848.0000,
9847.0000, 9821.4000 and 9821.5000Services provided by beauty
parlors9838.0000Amount received by way of fee under any law by port
operating and allied services9805.5100Hajj and Umrah services
provided by tour operatorsExemptions - PSTAs per notification No.
PRA/Caterers.21/2012 dated November 25, 2013, Exemptions from levy
of Sales Tax has been granted to services provided by standalone
caterers to the extent of 11% from the rate of tax subject to the
conditions mentioned therein.1920Reduced Rate - SSTList of reduced
rate services as per Notification no. SRB-3-4/8/2-13 dated July 1,
2013 subject to conditions thereinTariff
HeadingServicesRate9805.3000Freight forwarding agents Rs. 500 per
bill of lading 9807.0000 & 9814.3000Property developers or
promotersRs. 100 / Rs. 50 per square yard / square foot9810.0000,
9821.4000 and 9821.5000 Beauty Parlors etc.10%9815.2000 Legal
practitioners and consultants4%21Reduced Rate - SSTTariff
HeadingServicesRate9815.3000Accountant and auditors4%9815.9000Tax
consultants4%9818.1000Security agency10%9824.0000Construction
services4%Contractual execution of work or furnishing supplies -
9809.0000
KTBA understands that the above classification is considered too
wide, vague and unwarranted as it virtually covers every facet of
business. On the basis of this entry, entire 2nd Schedule becomes
redundant.
As such, the entry be deleted from the Second
Schedule.22Contractual execution of work or furnishing supplies -
9809.0000
1. Exemption
If both the following conditions are met:
(a) total value of such work or supplies does not exceed Rs. 50M
in a financial year and
(b) the value of service component of such contractual execution
of work or furnishing supplies also does not exceed Rs. 10M
23(a) Services forming part of a composite contract is taxable
only if the same fall under the taxable services listed in the
Second Schedule and embedded in contract for execution of work or
furnishing supplies
(b) Value to each contract with Contractee (and not all
contracts of a Contractor) is to be considered for the levy of SST;
otherwise it will result in withholding tax issues, as the
Contractee may not be aware of the value of other contracts of the
Contractor
24SST issues & KTBA views 9809.0000(Letter dated November
27, 2013)(c) Value to each contract entered into by the Contractor
is to be considered separately
(d) Exemption threshold is applicable on the basis of work
performed in any financial year25SST issues & KTBA views
9809.0000(Letter dated November 27, 2013)Reduced rate on
Construction contracts - 9824.0000
KTBA is of the view that services provided by a contractor
engaged in a single contract for the construction of building
including other works i.e. civil, electrical and mechanical works
will fall under the heading 9824.0000 (construction services).
Such contractor may opt for charging sales tax at the reduced
rate of 4% under notification No. 3-4/8/2013 dated July 1, 2013 for
the whole of contract.26SST issues & KTBA views (Letter dated
November 27, 2013)DRAFT NOTIFICATION27Notifications are generally
being issued without first issuing the Draft for the same, for
comments by the Stakeholders.
It is recommended that prior to issuing Notifications, the Draft
Notifications be issued for comments by the Stakeholders and final
notification be issued after atleast 15 days.DRAFT LAW28 I wish
that the law making body shall frame the laws after deliberations
which is an additional duty cast upon the law making body in terms
of the Article 2-A of the Constitution. The same is in accordance
with the Injunctions of Islam and Doctrine of Expectation of
Consultations Honble Justice Chaudhry Ijaz Ahmed
Workshop on Sales Tax Laws on ServicesPart 3 Federal Sales Tax
Withholding Rules 2007 FST - SRO 660 of 2007
Asif S. Kasbati, FCA, FCMA & LLBHead of Group Taxation &
Legal AffairsGatron Group of Companies
Ex-Director Tax ServicesA. F. Ferguson & Co.
PTBA & KTBA - March 21, 2014
At Marriott Hotel, Karachi2929Withholding Agents
Federal and Provincial Government DepartmentsAutonomous
bodiesPublic sector organizationsCompanies as defined in the Income
Tax Ordinance 2001, which are registered for FST, FED or income tax
Recipients of service of advertisement, who are registered for FST;
and Registered Exporters30Company as per Income Tax Ordinance
Company as defined in the Companies Ordinance Body corporate
formed by or under any law in force in Pakistan Modaraba Body
incorporated by or under the law of a country outside Pakistan
relating to incorporation of companies Trust Non Profit
Organization31Company as per Income Tax Ordinance
Co-operative Society or Finance Society or any Other Society
established or constituted by or under any law for the time being
in force Foreign Association, whether incorporated or not, which
the Board has, by general or special order, declared to be a
company for the purposes of this Ordinance; Provincial Government;
Local Government in Pakistan; or Small Company as defined in the
Income Tax Ordinance 2001.32Advertisement Services, ST shown on the
invoice i.e. from Registered personDescriptionAmount Rs.Value of
Advertisement services excluding ST1,000ST chargeable @
16%160Amount as per invoice1,160ST to be deducted by the
WA160Balance amount payable to the Service provider by the WA Rs
1,000
FED, BSTO, ICTO: 16%
33Example : Registered service provider (service other than
advertisement, if applicable)DescriptionAmount Rs.Value of services
excluding ST1,000ST chargeable @ 16%160Amount as per invoice1,160ST
to be deducted by the WAi.e. Rs. 160 5 or Rs. 1,000 x 3.2%32Balance
amount payable to the supplier by the WA Rs 1,128.
FED, BSTO, ICTO: 16%34Advertisement from Unregistered
personNature of ServicesWithholding Agent Rate of Withholding
TaxAdvertisement Services (received other than from Sindh, Punjab,
KPK)Recipient of advertisement services, registered for sales
taxApplicable rates of sales tax 35DescriptionAmount Rs.Invoice
value1,000ST @ 16 % to be deducted by the WA(1,000/116 x 16
)138Balance amount payable to the Service provider by the WA Rs
862
FED, BSTO, ICTO: 16%
Advertisement Services ,ST not shown on the invoice i.e. from
Unregistered person36Receiver not registered for FSTIf the
recipient of advertisement services is not registered under Sales
Tax Act 1990, it can be argued that the recipient will not withhold
tax. For instance, certain governments, autonomous bodies, etc.
will pay off the gross sum back to the channel /
agency.37Exemptions from ST WHT
Electrical energy;Natural gas;Petroleum products as supplies by
petroleum production and exploration companies, oil refineries and
oil marketing companies;Mild steel products;
38Exemptions from ST WHTProducts made from sheets of iron or
non-steel alloy, stainless steel or other alloy steel;Paper, in
rolls or sheets;Plastic products including pipes; Vegetable ghee
and cooking oil; andTelecommunication.Issue: Interpretation may be
link to the Tariff Heading.39Deposit of ST by Registered WHT
AgentsWithholding tax agents registered under ST or FED shall
deposit withheld sales tax on the 15th of the month following the
month in which tax deduction was made.Declaration of withheld tax
shall be made in monthly tax return.Issue: Tax withheld by the
buyer is not adjustable against own refundable.40Deposit of ST by
Unregistered WHT AgentsWithholding tax agents, not otherwise liable
to register under ST or FED, shall deposit such withheld tax on
return set out in Annexure to SRO 660 and deposit such tax on the
15th of the month following the month in which tax deduction was
made. 41Other Legal, Compliance & Business IssuesAdjustment of
Tax Deduction and CertificateConversion of Corporates to AOP /
Individuals Multiple registrations of AOP / Individual Input Tax
Credit vs. Tax WithholdingST on Advance Refund of withheld tax
42Other Legal, Compliance & Business IssuesIssues relating
to Excisable servicesNo WHT as per Baluchistan and Islamabad
Service OrdinancesAmendment required in Section 8B of FSTPetition
against FST and Interim reliefPenalty for non-compliance
43A1 Adjustment of Tax Deduction and CertificateA registered
supplier is entitled to claim tax credit of withheld tax on the
basis of certificate of deduction issued by the corresponding
withholding agent.No specific format of such certificate is
prescribed in the rules.Issue: Prescribed certificate is not
notified.44A2 Monthly Certificate SuggestedCertification about tax
withheld.Certification to deposit withheld sales tax for the month
by 15th of the following month. Certification to provide copies of
the relevant pages of submitted version of the e-Forms, if required
by SellerSST: Only Point 1 CoveredPST & FST : Format
required
45A3 Reason for certification formatEnsure timely deposit of tax
withheldPractical issue of following up for cheque first and then
following up for certificate.Avoid cash flow issue next month as
applicable in case SST format which required to issue certificate
after deposit of tax.46B. Conversion of Corporates to AOP /
Individuals Corporate withholding agents might start / shift
business in the name of AOP / Individuals; thus, corporatization
would be hampered and adversely affected. Manufacturers / Importers
might prefer sales to unregistered sectors or to AOPs / Individuals
who not required to withhold tax.47
C. Multiple registrations of AOP / IndividualIn many cases,
businesses conducted by Individuals / AOPs have multiple
registrations, e.g., importer-cum-wholesaler-cum-exporter, etc.
However, such businesses may not be practically engaged in Exports
at all. In such cases, such Individuals / AOPs may either need to
change their registration particulars; otherwise they would be
considered as a withholding agent due to their status as Exporter
too. 48D. Input Tax Credit vs. Tax Withholding
The registered buyer is entitled to claim input tax credit in
the related tax period on accrual basis.WHT is to be deducted at
the time of making payment to the supplier. Delayed payment to
supplier does not affect the right to claim withholding tax credit.
However, system restrictions do not allow such credit.49D. Input
Tax Credit vs. Tax Withholding
In respect of withholding agent (other than service provider)
under SRB and registered under FBR, withholding SST is required to
be deposited by 15th day of the month following the period in which
he claims input tax adjustment in FBR Return or payment is made,
whichever is earlier. 50
E. Sales Tax on Advances and Withholding Tax 51Section 2(44)
requires collection of sales tax at earlier of the time the goods
are delivered or the time any payment is received2.Sales Tax
General Order (STGO) 1 of 2006 dated June 5, 2006:Chargeability,
collection and deposit of sales tax against advance payment on the
basis of Advance Payment Receipt which is deemed to be a sales tax
invoice
E. Sales Tax on Advances and Withholding Tax 52(b)Sales tax is
to be withheld and deposited on the basis of Advance Payment
Receipt
(c)Issuance of Sales Tax Invoice under section 23 of the Sales
Tax Act, 1990 at time of actual delivery of goodsF. Refund of
Withheld TaxSection 10 of the Act deals with input tax carried
forward & export refundsSection 66 of the Act deals with refund
cases where tax was paid in inadvertence, error or misconception or
input tax adjustments not claimed within 6 months periodNo specific
provision exists in the statute to claim refund of withheld tax
!
53G. Issues relating to Excisable servicesFED items under Sales
tax mode are covered under SRO 550(I)/2006 dated June 5, 2006.
These are not subject to Withholding Sales Tax due to
----Withholding tax regime is framed under FST and not FEDThere is
no concept of Withholding ax under FED law54H. No WHT as per
Baluchistan and Islamabad Service OrdinancesIn KTBA views, Services
subject to Baluchistan and Islamabad Capital Territory Ordinances
are not subject to withholding sales tax as __
Withholding tax regime is under FST and not under the
Ordinances
There is no concept of withholding sales tax under these
Ordinances
55I. Amendment required in Section 8B of FSTRegistered persons
are restricted to adjust input tax in excess of 90% of output tax
i.e. 10% mandatory paymentWhilst e-filing the return, Sales tax
suffered @ 20% or 10% on own supplies is adjustable against the
above, to which we agreeSection 8B is required to be amended to be
in line with E-filing system
56Petitions against FST and Stay orderBe Be Jan Colours VS FBR
WP 11939/13 - LHC stay order of May 2013 Suspended to the extent of
petitioner
Adnan Powers & Others D-3445/13 SHC order of August 2013 No
adverse action 57FST WHT - Legal Grounds of Petition and Stay
orderBeyond the powers of the Federal Government (FG) as envisaged
under Section 3(6) of ST Act to tax only supplies and goods
Ultra vires to the Constitution as it only empowers the FG to
levy sales tax on goods
58FST WHT - Legal Grounds of Petition and Stay
orderContradictory to exemption under Serial no. 3 of the Sixth
Schedule available to retailers and cottage industry having
turnover less than Rs 5M
Withholding Rules are in violation of Article 18 (Fundamental
Rights) of the Constitution.
59FST WHT - Legal Grounds of Petition and Stay
orderDiscriminatory and in violation of Article 25 (Fundamental
Rights) of the Constitution, being applicable to selected
registered persons;
Impracticable to advertise / notify that the payment will be
subjected to sales tax withholding;
60FST WHT - Legal Grounds of Petition and Stay orderPerson
deducting the tax is not allowed to take credit of tax withheld on
payment to unregistered persons;
Collection of sales tax more than amount that would be the
actual sales tax liability;
61Penalties For Non Compliance
Non-compliance of the Withholding Tax may result in invoking of
section 8A - Joint and several liability of registered persons in
supply chain where tax remained unpaid as well as levying varying
penalties as provided under Section 33 of the Sales Tax Act, 1990.
Relevant Serials of section 33 are 5, 17 or 19. The penalty
exposure ranges from Rs. 5,000 or 3% of the amount of tax involved
to Rs. 10,000 or 5% of the amount of the tax involved, whichever is
higher.
62Penalties For Non Compliance
Penalty should not be levied till it is proved that the supplier
has also defaulted in his liability to the state and a revenue dent
was caused to the exchequer.
6364Taxes, after all, are dues that we pay for the privileges of
Membership in an Organised Society.
Franklin D. Roosevelt 1936
_____________________
In the world, nothing can be said to be certain except Death and
Tax.
Benjamin Franklin - 1789
66
Q&A SessionEMAIL CONTACTSNameEmail addressK.T.B.A
[email protected] Asif S [email protected]
Adnan [email protected] Asif
[email protected] Haider Patel
[email protected] Zeeshan
[email protected] You &Allah bless you