punjabsalestaxlawsicap(1)

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Special Procedures for Taxable Servicesunder Punjab Sales Tax Laws

Ghazanfar Siddiqui, MA, LLB

Senior Manager Shekha & Mufti, Chartered Accountants

The Institu te of Chartered Accountants of Pakistan

21 November 2012

http://service93.mimecast.com/mimecast/click?account=C46A3&code=77040404d563fa1ed44abcb7ba2fb7fc



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SEMINAR OVERVIEW




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TABLE OF CONTENTS

Advertisements on Radio, TV, CC TV & Cable TVHotels, Clubs, restaurants & CaterersCustom Agents, Ship Chandlers & StevedoresCourier ServicesStock BrokersFinancial Services

Telecommunication ServicesInsurance ServicesShipping AgentsFranchise Services




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Tariff Heading Description Rate of Sales Tax

9801.10009801.20009801.4000 and9801.5000

Services provided by hotels, restaurants, clubs andcaterers

16%

9802.1000

and9802.2000

Advertisement on Television and Radio

Exempted Advertisements

(a) sponsored by an agency of the Federal orProvincial Government for health education;(b) financed out of funds provided by a Government

under grant-in-aid agreement; and(c) conveying public service message, if telecast ontelevision by the World Wide Fund for Nature (WWF)or United Nations Children’s Fund (UNICEF).

16%

Services Taxable in Punjab as per Second Schedule to PSTSA




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98.12 Telecommunication Services

Exempted Services

Dialup or broadband internet services whether includingemail services, data communication networkservices(DCNS) and value added data services.

Such charges payable on the international leased lines orbandwidth services used by software exporting firmsregistered with the Pakistan Software Exporting Board anddata and internet service providers licensed by the PTA

Such amounts received by the Long Distance International

license holders including PTCL on International incomingcalls under agreements with foreign telecommunicationcompanies.

19.5%




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98.13 Services provided in respect of insurance to a policy holder by aninsurer, including a re-insurer;

(a) goods insurance;(b) fire insurance;(c) theft insurance;(d) marine insurance; and(e) other insurance;

Exempted Services(a) Marine insurance for export;(b) Life insurance;(c) Health insurance;(d) Crop insurance.

16%

98.13 Services provided by Banking Companies or Non-Banking FinancialInstitutions including but not limited to all non-interest based servicesprovided against a consideration in form or a fee or commission orcharge

16%




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9819.1000 Services provided by the stock brokers 16%

9805.1000 Services provided by shipping agents 16%

9823.0000 Franchise Services 16%

Any other service notified by the PunjabGovernment in the official Gazette




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Services Taxable in PunjabComparative Analysis with Rest of

Pakistan




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Services Sindh Punjab Baluchistan,& Islamabad

Capital

Territory

Khyber Puktunkhaw

Sindh Sales Tax onServicesAct 2011

PunjabSales Tax

on ServicesAct 2012

Sales TaxOrdinance

2000

Sales TaxOrdinance

2000

SRB PRA FBR FBR

Services provided by hotels,clubs and caterersRestaurants only taxed in Sindh &Punjab

Advertisement on Televisionand Radio (excluding

exempted services).Hoarding, Pole Signs and Sign Boardsonly taxed in Sindh and Punjab

Advertisement on a cable TV × * **




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CapitalTerritory

Khyber Pukhtunkhaw

Sindh Sales Tax onServices

Act 2011

PunjabSales Tax

on Services

Act 2012

Sales TaxOrdinance

2000

Sales TaxOrdinance

2000

SRB PRA FBR FBR

Advertisement on closedcircuit TV

× * × * *




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Services provided by personsauthorized to transact businesson behalf of others;(a) customs agents(b) ship chandlers(c) stevedores

Courier Services


CapitalTerritory

Khyber Pukhtunkha

w

Sindh Sales Tax on

Services Act2011

PunjabSales Tax

on ServicesAct 2012

Sales TaxOrdinance

2000

Sales TaxOrdinance

2000

SRB PRA FBR FBR




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Services provided by BankingCompanies or Non-BankingFinancial Institutions

× * **

Services provided by thestock brokers

× * × **

Services provided by shippingagents

×

***


Capital

Territory

Khyber Pukhtun-khaw

Sindh Sales Tax on

Services Act2011

PunjabSales Tax

on ServicesAct 2012

Sales TaxOrdinance

2000

Sales TaxOrdinance

2000

SRB PRA FBR FBR




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* Classified as excisable services under FederalExcise Act 2005

** Administered under Federal Excise Act 2005




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SPECIFICPROVISIONS FORTAXABLESERVICES




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Advertisements on Radio, TV and Cable TV

Scope: In relation to advertisements on television and radio, theexpression “taxable services” include the services in respect of advertisements:

broadcast or telecast by TV or radio stations located in Punjab;booked in Punjab for broadcasting or telecasting on TV or radio stationsbased elsewhere, whether or not possessing landing rights in Punjab;andtransmitted on cable T.V. networks.




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Registration : Every person providing services of advertisement on Television, Radio or Cable TV as an advertising agent (includingadvertising company or firm *) shall obtain registration and pay sales tax.

Value of taxable service : The total consideration in money received orthe gross amount charged by a registered person from his clients,including all Federal and Provincial levies but excluding the amount of sales tax.

* Advertising Companies / Firms are not liable to tax under 2 nd Schedule.It appears to be a vague definition with advertisements onTV/Radio/Cable has been mixed up with services rendered by

advertising agents.




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Cable TV Operator: Cable TV operator means a person, a company, afirm, an establishment or an organization engaged or involved in thecollection and distribution or dissemination of audio-video signals forpublic viewing whether through a cable, MMDS, LMDS or DTH (throughsatellite receiver).

Where any cable operator receives advertisement bookings directly from

the clients, he shall be liable to registration with PRA and pay sales taxon the basis of gross amount charged by him including all Federal andProvincial taxes other than sales tax.

Record Keeping: Not more than one book of bill of charges shall be

used at one time, provided that where such person has more than onebranches of the establishment, separate books of bill of charges may beused for each such branch.




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Tax Payment: The advertising agent shall file a quarterly statement

with PRA and pay tax* on quarterly basis by the 15th

day of November,February, May and August on the basis of the amount of commissions** charged or billed during the last quarter.

* Refer Withholding Tax Rules

** Besides, TV / Radio Channels do not charge commission; rather it ischarged by the intermediary, i.e., advertising agent.




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CATERER: Caterer means any person who supplies, either directly or

indirectly, any food, edible preparations, beverages, drinks or crockery andsimilar articles of accoutrements for any purpose including ceremony,party, get-together, event or occasion.

Food items served by flight- kitchens on-board the conveyance leaving fora destination outside Pakistan shall be exempt.

RESTURANTS: Restaurants services include services of providing (sale)of all kinds, types and categories of eatables and drinkables whethercalled restaurant or café, café house, food parlor, ice cream parlor or suchmarriage, shadi and banquet hall and lawn as is also providing restaurant

type service. Rental charges for use dining room and conducting functions/ events including decoration will included for the assessable value.




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Other Features of Restaurants’ Taxation

InvoicingInami (Reward) Scheme for CustomersUse of Electronic Cash Registers

Tax: Sales tax shall be charged and paid on kinds of services including but

not limited to the provisioning of food items, drinks (water, soft drinks andothers) and other eatables served by hotels, clubs, restaurants and caterers,whether for consumption inside or outside the premises.

A service shall remain and continue to be treated as service regardlesswhether or not rendering thereof involves any use, supply or consumption of goods either as an essential or an incidental aspect of such rendering –Section 2(38).




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Clubs

CLUBS: means any person or body of persons providing service, facilities oradvantages, for a subscription or any other amount, to its members, subject tocertain exclusions.

Tax: In relation to hotels and clubs, sales tax shall also be charged and paid onservices like renting of rooms or accommodation, or any other premises,provision of games, sports, or gym, running of health clubs, commercialcentres, rent-a-car, tourism services and other businesses, facilities or utilitiesprovided by the hotels and clubs.





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Clubs and Associations…….

Value of Service: In relation to clubs, the value of taxable services shall be the

gross amount charged or the consideration in money including fee relating toaward of new membership, monthly membership fee and all Federal orProvincial taxes, if any, which clubs receive from its members or clients, exceptconsideration received on account of refundable deposits or security amountsunless the same are deducted or adjusted in full or in part as settlement or

recovery of dues for services.

Hotel shall also be liable to pay sales tax on all services like gym, sports,swimming, golf, events organized, exhibitions, shows, parties, etc.

Tax Payment & Return Filing

Hotel, Restaurant & Caterer = 15 th day of the month following the tax periodClubs = 15 th day of the second month following the tax period





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Menu: Every hotel, restaurant and club shall print in its menu card or

list of food items to be supplied, the price of each item or as the casemay be, combination of food, inclusive of all duties and taxes,whether Provincial or Federal, including the sales tax . The recipientor consumer of food shall be invoiced or billed on the basis of theprices shown in the menu card or price list.





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CUSTOMS AGENTS, SHIP CHANDLERS & STEVEDORES

Customs Agents

Services: All services provided by the custom house agents in respect of importand export cargo clearance from customs or other port agencies whether throughsea ports, dry ports or airports, etc.

Where a custom house agent has provided services to an unregistered client fromPunjab at ports outside Punjab, he shall be liable to pay sales tax to PRA in

respect of export-cargo originating anywhere from Punjab and import cargodestined to anywhere in Punjab. Besides, a person registered under the Act, aperson registered under STA will also have to deduct and pay sales tax to PRAagainst invoices issued by customs agents. – Principle of Origin & Reverse Charge(Section 4) .

Value of Service: Except for expenses incurred on behalf of clients, all kinds of fees, commissions and charges received by the customs house agent shall beincluded in the taxable value base.




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Courier ServicesPunjab Sales Tax Law Sindh Sales Tax Law

Courier services means the transmission ,

transportation or conveyance, whether door-to-door or not of time-sensitivedocuments, goods, articles or cargowhether or no t uti lizing the services of a person either directly or indirectly toaccompany such documents, goods,articles or cargo and inc ludes speedpost , express cargo service and similar fast services of transmission,transpor tation and conveyance of documents, goods, articles or cargo.

“Courier Services” means any person

engaged in the transportation of documents, goods or articles to carry oraccompany such documents, goods orarticles.

Courier services provided by airlines, post offices, railways, road passenger or cargotransport businesses shall be liable to tax under the Act with no input tax adjustmentallowed on such transactions .




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Services only in Punjab = Registration in the name of Head Office.Services in and out of Punjab = Registration in the name of Regional Office in

Punjab.

Destroyed ConsignmentWhere during the custody of a courier service provider, any document,goods, articles or cargo etc is destroyed for reasons beyond human

control and charges of service are refunded to the customers, the tax shallbe deemed to have been remitted and adjustment to that effect shall betaken in the return of relevant tax period or as the case may be, of the nexttax period *.

* Unique concept not available in other sales tax laws.





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Stock Brokers

Brokerage business means the services provided by a broker registered

under the Brokers and Agents Registration Rules 2001.All stock brokers engaged in the business of brokerage, provided to a personhailing from Punjab or which he provides at any stock exchange located inPunjab, for the sale and purchase of stocks shall be liable to pay sales tax onthe gross amounts of their commissions.

Where a stockbroker purchases stocks from his own financial recourses witha view to sell the same to any other person other than the concerned joint-stock company, he shall pay sales tax on the basis of commission workable@ open market rates at the time of sale of such stocks *.

* Shares purchased for itself as investments involve no commission fo r the brokeragehouse.





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Financial Services

Serial No. 8 – 2 nd Schedule of the Act:

“Services provided by Banking Companies or Non-Banking FinancialInstitutions including but not limited to all non-interest based servicesprovided against a consideration in form or a fee or commission or

charge”.

Banking company is as defined in section 5 of Banking CompaniesOrdinance 1962.





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Sales tax shall be payable by every banking company and non-banking financialinstitution on all its non-interestbased services excluding mark-up or interest,provided to any person against a consideration in the formof fee, commission or

charge**.

** Serv ices of u ti li ty col lection , Umra and Haj j serv ice, cheque book issuancecheque return, Musharika and Modaraba Financing are exempt under SSTSA &the rules but not under PSTSA.

Tax Invoice may be issued to registered persons for their claim of input tax .Potential Issues !

Are banking services taxable beyond the list prescribed in 2 nd Schedule ?

FED not exempted as yet. Simultaneously, LTU Karachi has established demand of excise duty on banking services rendered for period J uly 2011 & onward.





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Telecommunication

Broader Definition of Telecommunication Services !

Scope of Tax: All telecommunication services, falling under four digitclassification No.98.12, shall be liable to tax regardless, whether or notany description of any sub-classification has been mentioned in column (2)of serial number 6 of the Second Schedule to the Act, unless specificallyexcluded in the said Second Schedule.





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Record Note Agreed by All Provinces

The Federal Board of Revenue (FBR) and theprovinces will collect sales tax on services inaccordance with the 'Record Note' agreedbetween the federation and provinces onSeptember 28, 2010 ……………..Group-II shallinclude telecommunication services , giventhat the origin of these services is clearlyidentifiable. The proceeds of GST on telecomservices shall be credited directly by telecomcompanies to the provinces on the basis of revenue generated on the basis of origin of service in each province …….The issue of GSTon services provided by the LDIs/Telcos ondestination basis shall be explored by the FBRand provinces …….The intellectual principle isinarguable that, to the extent whereidentification is not clearly possible, proceeds of GST on Services should accrue to the provincefrom which GST on Services originates.

Sales tax shall be charged and paid by a registered person engaged in providing

telecommunication on all such services as:

are rendered in Punjab;originated from Punjab;

terminated in Punjab;

are effectively enjoyed and used in Punjab;

where SIMis activated in Punjab; orrecipient of the service:

is present in Punjab;

is resident in Punjab;

has permanent establishment in Punjab; orhas primary residence in Punjab.




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Where a service crosses Provincial or national borders and its charges are divisibleeither contractually or otherwise between different territories, tax shall be paid onlyto the extent of charges attributable to the territory of Punjab.

While determining his liability, the registered person shall be entitled to deduct input tax paidon procurement of any specialized equipment * or the tax paid on acquiring services inconnection with the provision of telecommunication services.

* Exclusively used and consumed in Punjab

Dates of Filing:Post paid telephone services = 21 st day of the following 2nd month;Pre-paid telephone services = 21 st day of the following month

Other telecom services = 21 st day of the following month




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Insurance Services

Insurer: Insurer means any person carrying on an insurance business orgeneral insurance business and includes a reinsurer.

Insurance : Insurance means insurance or guarantee against loss, damage,injury, or risk of any kind whatever, whether pursuant to any contract or anyenactment; and includes reinsurance.

Scope of Tax: All insurance companies shall pay sales tax on servicesprovided by them in respect of all kinds of insurance (except thoseexempted). Sales tax shall be calculable on the gross amount of premium

charged on risk covered in the insurance policy.




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Time of Payment: The tax in respect of an insurance policy shall beaccounted for in the month when premium is received and deposited bythe insurance company at the time of filing of return by the 15th day of the

following month.

An insurance company shall not be liable to pay tax in respect of acontract or any part thereof if cancelled provided that the tax already paidin respect of services provided in consequence of such contract shall not

be refunded under any circumstances *.

* In terms of SSTSA, sales tax is not payable in respect of cancelledcontract or any part thereof.

Denial of Refund – Adjustment Allowed or Not ? Law needs to beclarif ied. If adjustment is also denied to taxpayer, the rule would beredundant altogether.




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Shipping Agents

A person, who holds the license under the Customs Act, 1969 (IV of 1969), orthe rules made thereunder and provides any service to entrance or clearanceof a conveyance at a customs port and issues line or carrier bill of lading, foror on behalf of a shipping line and includes non-vessel operating commoncarriers, slot carriers, charterers, international freight forwarders andconsolidators, rendering services in relation to import and export of cargo,independently or as subsidiary of a shipping line, carrier and non-vesseloperating common carriers *.

Tax: Every shipping agent shall pay sales tax * on monthly basis in respect of each ship handled by him, which calls on any port of Pakistan after foreignvoyage.

* Most of such services attract fixed sales tax @ Rs. 200 per House Bill o f Ladingunder STA or Rs. 400 per House Bill o f Lading under SSTSA




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Scope of Tax @ Sindh Sales Tax Law Scope of Tax @ Punjab Sales Tax Law

Every agent shall pay Sales Tax at the rate of sixteen per cent of the value of taxable

services which shall be the commissioncharged by an agent on the net ocean freightamount of cost and freight import or exportcargo for such services provided or renderedby him.

The agent shall pay tax on the grosscommissions charged for the services provided

by him as apportioned on the basis of loadableor unloadable cargo originating from ordestined to the territory of Punjab andreimbursable actual expenses, if any, incurredby such agent for and on behalf of his clientsshall not be included in the base of taxablevalue.

The apparent meaning of PSTSA may be that commission would be charged on the net oceanfreight amount of cost and freight import or export cargo.

However, such commission would require bifurcation between loadable and unloadable cargorelating to Punjab Province.

PSTSA allows all reimbursable expenses as admissible deduction for computing sales tax.However, SSTSA has prescribed a list thereof and only such expenses may be admissible.




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Franchise Services

Components of Definition of Franchise

An authority given by a franchiser under which the franchisee is contractuallyor otherwise granted any right to:

ProduceManufactureSell

TradeDo any other business activityDo service or undertake any process

identified with franchiser against an agreed fee, whether or not trade mark,service mark, trade name, logo, brand name or any such representation of symbol.



F f F hi S i



Features of Franchise Service

If any remittance is made through bank on account of franchise fee, technicalfee or royalty and the bank is satisfied that the franchisee has not paid FED

thereon, the bank is authorized to:----Deduct the amount of ST from such remittance

----Issue certificate on its letter head showing the name & registration numberof the franchisee and the amount of ST so deducted

----Deposit the amount of ST against its own monthly return

Potential Issue

Authorities treat all types of remittances as royalty fee / technical fee /franchise fee.

If franchisee not registered, bank faces problems in payment of ST

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