Special Procedures for Taxable Services under Punjab Sales Tax Laws

Ghazanfar Siddiqui, MA, LLB

Senior Manager Shekha & Mufti, Chartered Accountants
The Institute of Chartered Accountants of Pakistan 21 November 2012

SEMINAR OVERVIEW

TABLE OF CONTENTS

Advertisements on Radio, TV, CC TV & Cable TV Hotels, Clubs, restaurants & Caterers Custom Agents, Ship Chandlers & Stevedores Courier Services Stock Brokers Financial Services Telecommunication Services Insurance Services Shipping Agents Franchise Services

Services Taxable in Punjab as per Second Schedule to PSTSA

Tariff Heading 9801.1000 9801.2000 9801.4000 and 9801.5000 9802.1000 and 9802.2000 Description Rate of Sales Tax 16% Services provided by hotels, restaurants, clubs and caterers Advertisement on Television and Radio Exempted Advertisements (a) sponsored by an agency of the Federal or Provincial 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 on television by the World Wide Fund for Nature (WWF) or United Nations Childrens Fund (UNICEF).
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16%

9802.5000

Advertisement on a cable television Advertisement on hoarding, pole signs and sign boards
* Advertisement on news paper and periodicals declared exempt from ST since date of enforcement (as per daily new papers)

16%

9805.4000 9805.8000 and 9805.2000

Services provided by persons authorized to transact business on behalf of others; (a) customs agents (b) ship chandlers (c) Stevedores Courier Services

16%

9808.0000

16%
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98.12

Telecommunication Services Exempted Services Dialup or broadband internet services whether including email services, data communication network services(DCNS) and value added data services. Such charges payable on the international leased lines or bandwidth services used by software exporting firms registered with the Pakistan Software Exporting Board and data and internet service providers licensed by the PTA Such amounts received by the Long Distance International license holders including PTCL on International incoming calls under agreements with foreign telecommunication companies.

19.5%

98.13

Services provided in respect of insurance to a policy holder by an insurer, 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. Services provided by Banking Companies or Non-Banking Financial Institutions including but not limited to all non-interest based services provided against a consideration in form or a fee or commission or charge

16%

98.13

16%

9819.1000 9805.1000

Services provided by the stock brokers Services provided by shipping agents

16% 16%

9823.0000

Franchise Services Any other service notified by the Punjab Government in the official Gazette

16%

Services Taxable in Punjab

Comparative Analysis with Rest of Pakistan

Services

Sindh

Punjab

Punjab Sindh Sales Sales Tax Tax on Services on Services Act 2012 Act 2011 SRB PRA Services provided by hotels, clubs and caterers
Restaurants only taxed in Sindh & Punjab

Baluchistan, & Islamabad Capital Territory Sales Tax Ordinance 2000 FBR

Khyber Puktunkhaw

Sales Tax Ordinance 2000 FBR

Advertisement on Television and Radio (excluding exempted services).

Hoarding, Pole Signs and Sign Boards only taxed in Sindh and Punjab

Advertisement on a cable TV

**
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Services

Sindh

Punjab

Baluchistan, & Islamabad Capital Territory Sales Tax Ordinance 2000

Khyber Pukhtunkhaw

Punjab Sindh Sales Sales Tax Tax on on Services Services Act 2012 Act 2011 SRB Advertisement on closed circuit TV PRA *

Sales Tax Ordinance 2000

FBR *

FBR *

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Services

Sindh

Punjab

Punjab Sindh Sales Sales Tax Tax on Services Act on Services Act 2012 2011 SRB PRA Services provided by persons authorized to transact business on behalf of others; (a) customs agents (b) ship chandlers (c) stevedores Courier Services

Baluchistan, & Islamabad Capital Territory Sales Tax Ordinance 2000 FBR

Khyber Pukhtunkha w Sales Tax Ordinance 2000 FBR

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Services

Sindh

Punjab

Khyber Baluchistan, & Islamabad Pukhtun-khaw Capital Territory Sales Tax Ordinance 2000 Sales Tax Ordinance 2000

Punjab Sindh Sales Sales Tax Tax on Services on Services Act 2012 Act 2011 SRB Telecommunication Services (excluding exempted services) Insurance Services (excluding exempted services) PRA

FBR

FBR **

**

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Services

Sindh

Punjab

Punjab Sindh Sales Sales Tax Tax on Services Act on Services Act 2012 2011 SRB PRA Services provided by Banking Companies or Non-Banking Financial Institutions Services provided by the stock brokers Services provided by shipping agents

Baluchistan, & Islamabad Capital Territory Sales Tax Ordinance 2000 FBR

Khyber Pukhtun-khaw

Sales Tax Ordinance 2000 FBR **

* *

**
**

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Services

Franchise services

Baluchistan & Islamabad Capital Territory Sales Tax Punjab Sindh Sales Tax Sales Tax Ordinance 2000 on on Services Services Act 2011 Act 2012 SRB PRA FBR *

Sindh

Punjab

Khyber Pukhtunkhaw

Sales Tax Ordinance 2000

FBR **

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* Classified as excisable services under Federal

Excise Act 2005 ** Administered under Federal Excise Act 2005

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SPECIFIC PROVISIONS FOR TAXABLE SERVICES

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Advertisements on Radio, TV and Cable TV Scope: In relation to advertisements on television and radio, the expression 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 stations

based elsewhere, whether or not possessing landing rights in Punjab; and transmitted 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 (including advertising company or firm *) shall obtain registration and pay sales tax. Value of taxable service: The total consideration in money received or the 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 2nd Schedule. It appears to be a vague definition with advertisements on TV/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, a firm, an establishment or an organization engaged or involved in the collection and distribution or dissemination of audio-video signals for public viewing whether through a cable, MMDS, LMDS or DTH (through satellite receiver). Where any cable operator receives advertisement bookings directly from the clients, he shall be liable to registration with PRA and pay sales tax on the basis of gross amount charged by him including all Federal and Provincial 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 one branches of the establishment, separate books of bill of charges may be used 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 is charged 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 and similar 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 for a destination outside Pakistan shall be exempt. RESTURANTS: Restaurants services include services of providing (sale) of all kinds, types and categories of eatables and drinkables whether called restaurant or caf, caf house, food parlor, ice cream parlor or such marriage, 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 Invoicing Inami (Reward) Scheme for Customers Use 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 and others) 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 regardless whether 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 or advantages, for a subscription or any other amount, to its members, subject to certain exclusions. Tax: In relation to hotels and clubs, sales tax shall also be charged and paid on services like renting of rooms or accommodation, or any other premises, provision of games, sports, or gym, running of health clubs, commercial centres, rent-a-car, tourism services and other businesses, facilities or utilities provided 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 to award of new membership, monthly membership fee and all Federal or Provincial taxes, if any, which clubs receive from its members or clients, except consideration received on account of refundable deposits or security amounts unless 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 = Clubs =

15th day of the month following the tax period 15th 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 case may be, combination of food, inclusive of all duties and taxes, whether Provincial or Federal, including the sales tax. The recipient or consumer of food shall be invoiced or billed on the basis of the prices 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 import and export cargo clearance from customs or other port agencies whether through sea ports, dry ports or airports, etc. Where a custom house agent has provided services to an unregistered client from Punjab 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 cargo destined to anywhere in Punjab. Besides, a person registered under the Act, a person registered under STA will also have to deduct and pay sales tax to PRA against 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 be included in the taxable value base.

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Ship Chandlers Value of Service: Except for reimbursable actual expenses like transportation charges, port charges, handling or labor charges etc. and actual cost of commodities supplied on board, value of taxable services for the purposes of sales tax shall be total consideration received or the gross amount charged by a ship-chandler for providing the services including all Federal and Provincial taxes and levies but excluding the amount of sales tax. Where any fee or commission is realized from the service charges paid to the ship chandlers, the same shall be included in the base for calculating the tax liability.

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Stevedores All services provided by stevedores in respect of or connection with the loading, unloading, embarkation or disembarkation of import and export cargo shall be chargeable to sales tax. Only such gross commissions, fees and charges shall be reckoned for calculating tax as are relatable or attributable to the cargo originating from or destined to the territory of Punjab.

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Courier Services
Punjab Sales Tax Law Sindh Sales Tax Law

Courier services means the transmission, transportation or conveyance, whether door-to-door or not of time-sensitive documents, goods, articles or cargo whether or not utilizing the services of a person either directly or indirectly to accompany such documents, goods, articles or cargo and includes speed post, express cargo service and similar fast services of transmission, transportation and conveyance of documents, goods, articles or cargo.

Courier Services means any person engaged in the transportation of documents, goods or articles to carry or accompany such documents, goods or articles.

Courier services provided by airlines, post offices, railways, road passenger or cargo transport businesses shall be liable to tax under the Act with no input tax adjustment allowed on such transactions.
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Transportation of Cargo also classified as Courier Service; may affect such businesses which have incorporated separate companies for handling cargo and other goods.

Sales tax payable on every booking in the territory of Punjab including charges of such additional facilities extended, such as:

Warehousing Storage Packing Inventory Management Co-loader (for in-transit movement of documents, goods, articles or cargo)

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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 Consignment Where 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 shall be deemed to have been remitted and adjustment to that effect shall be taken in the return of relevant tax period or as the case may be, of the next tax 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 person hailing from Punjab or which he provides at any stock exchange located in Punjab, for the sale and purchase of stocks shall be liable to pay sales tax on the gross amounts of their commissions. Where a stockbroker purchases stocks from his own financial recourses with a view to sell the same to any other person other than the concerned jointstock 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 for the brokerage house.
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Financial Services Serial No. 8 2nd Schedule of the Act: Services provided by Banking Companies or Non-Banking Financial Institutions including but not limited to all non-interest based services provided against a consideration in form or a fee or commission or charge. Banking company is as defined in section 5 of Banking Companies Ordinance 1962.

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Sales tax shall be payable by every banking company and non-banking financial institution on all its non-interest based services excluding mark-up or interest, provided to any person against a consideration in the form of fee, commission or charge**.
** Services of utility collection, Umra and Hajj service, cheque book issuance cheque 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 2nd Schedule ? FED not exempted as yet. Simultaneously, LTU Karachi has established demand of excise duty on banking services rendered for period July 2011 & onward.

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Telecommunication Broader Definition of Telecommunication Services ! Scope of Tax: All telecommunication services, falling under four digit classification No.98.12, shall be liable to tax regardless, whether or not any description of any sub-classification has been mentioned in column (2) of serial number 6 of the Second Schedule to the Act, unless specifically excluded in the said Second Schedule.

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Sales tax shall be charged and paid by a registered person engaged in providing telecommunication on all such services as:
Record Note Agreed by All Provinces

are rendered in Punjab; originated from Punjab; terminated in Punjab; are effectively enjoyed and used in Punjab; where SIMis activated in Punjab; or recipient of the service: is present in Punjab; is resident in Punjab; has permanent establishment in Punjab; or has primary residence in Punjab.

The Federal Board of Revenue (FBR) and the provinces will collect sales tax on services in accordance with the 'Record Note' agreed between the federation and provinces on September 28, 2010..Group-II shall include telecommunication services, given that the origin of these services is clearly identifiable. The proceeds of GST on telecom services shall be credited directly by telecom companies to the provinces on the basis of revenue generated on the basis of origin of service in each province.The issue of GST on services provided by the LDIs/Telcos on destination basis shall be explored by the FBR and provinces.The intellectual principle is inarguable that, to the extent where identification is not clearly possible, proceeds of GST on Services should accrue to the province from which GST on Services originates.

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Where a service crosses Provincial or national borders and its charges are divisible either contractually or otherwise between different territories, tax shall be paid only to the extent of charges attributable to the territory of Punjab. While determining his liability, the registered person shall be entitled to deduct input tax paid on procurement of any specialized equipment * or the tax paid on acquiring services in connection with the provision of telecommunication services. * Exclusively used and consumed in Punjab

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

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Insurance Services Insurer: Insurer means any person carrying on an insurance business or general 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 any enactment; and includes reinsurance. Scope of Tax: All insurance companies shall pay sales tax on services provided by them in respect of all kinds of insurance (except those exempted). 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 be accounted for in the month when premium is received and deposited by the 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 a contract or any part thereof if cancelled provided that the tax already paid in 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 cancelled contract or any part thereof. Denial of Refund Adjustment Allowed or Not ? Law needs to be clarified. If adjustment is also denied to taxpayer, the rule would be redundant altogether.
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Shipping Agents A person, who holds the license under the Customs Act, 1969 (IV of 1969), or the rules made thereunder and provides any service to entrance or clearance of a conveyance at a customs port and issues line or carrier bill of lading, for or on behalf of a shipping line and includes non-vessel operating common carriers, slot carriers, charterers, international freight forwarders and consolidators, rendering services in relation to import and export of cargo, independently or as subsidiary of a shipping line, carrier and non-vessel operating 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 foreign voyage.
* Most of such services attract fixed sales tax @ Rs. 200 per House Bill of Lading under STA or Rs. 400 per House Bill of Lading under SSTSA
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Scope of Tax @ Sindh 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 commission charged by an agent on the net ocean freight amount of cost and freight import or export cargo for such services provided or rendered by him.

Scope of Tax @ Punjab Sales Tax Law The agent shall pay tax on the gross commissions charged for the services provided by him as apportioned on the basis of loadable or unloadable cargo originating from or destined to the territory of Punjab and reimbursable actual expenses, if any, incurred by such agent for and on behalf of his clients shall not be included in the base of taxable value.

The apparent meaning of PSTSA may be that commission would be charged on the net ocean freight amount of cost and freight import or export cargo. However, such commission would require bifurcation between loadable and unloadable cargo relating 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 contractually or otherwise granted any right to: Produce Manufacture Sell Trade Do any other business activity Do 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.

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Features of Franchise Services Franchisee to pay sales tax @16% on gross amount of franchise fee Registration by Franchisee with PRA Where franchiser and franchisee are locally based companies, liability to ST on royalty payment lies upon the franchiser Franchise arrangement for beverage companies Franchise arrangement for food companies ST on franchise fee is payable on 15th day of the month, following the payment month laid down in the franchise agreement Adjustment of ST not allowed

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Features of Franchise Service If any remittance is made through bank on account of franchise fee, technical fee 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 number of 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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THANK YOU
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