KPMG Taseer Hadi & Co.

Chartered Accountants

Sindh Sales Tax on Services Act, 2011

TAX 28 June 2011

Contents

The contacts at KPMG in connection with this report are: Executive Summary Salient Features Saqib Masood Partner / Head of Tax, Karachi, KPMG Taseer Hadi & Co. Tel: +92 21 3568 5847 Fax: +92 21 3568 5095
saqibmasood@kpmg.com

Page 2 3 4

Comparative Schedule of taxable services under the Sindh Sales Tax Act and Federal Excise Act 2005 / Provincial Ordinance 2000

The Sindh Sales Tax on Services Act, 2011 [Act] has been passed by the provincial assembly on 13 June 2011. The provisions of the Act are applicable from 01 July 2011. The document 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.

Mian Safiullah Partner, Islamabad, KPMG Taseer Hadi & Co. Tel: +92 51 282 3558

Fax: +92 51 282 2671

miansafiullah@kpmg.com

Kamran I. Butt Partner, Lahore, KPMG Taseer Hadi & Co. Tel: +92 42 3585 0471-6

Fax: +92 42 3585 0477

kamranbutt@kpmg.com

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Executive Summary

Pursuant to the 7th NFC award the Government of Sindh [the Government] decided to impose and collect Sales Tax on Services. Accordingly, the Sindh Revenue Board Act, 2010 was promulgated on 24th June 2010. The Act provides for the creation of Sindh Revenue Board [SRB] to manage, supervise and take all such actions as are necessary towards the administration of sales tax on services. The SRB would be responsible for overall policies and general administration of the services, while the Commissioners would be charged with the actual task of Registrations, De-registrations, Assessments and Collection of Sales Tax on Services. A separate Appellate Forum has also been proposed. The SRB is also empowered to issue notifications, orders, advices, circular, rulings and instructions for the enforcement of any of the provision of fiscal laws. On 6 June 2011 the Provincial Assembly proclaimed its constitutional right to levy, assess, collect and generally administer sales tax on services provided, rendered, initiated, received or consumed in the province of Sindh through enforcement of The Sindh Sales Tax on Services Act, 2011 [Service Act] effective 1 July, 2011. Except services of travelling and inland carriage of goods by air, all services which are taxable under Federal Excise Act, 2005 and under Sindh Sales Tax Ordinance, 2000 [respective laws] have been shifted and incorporated in the newly Service Act. Consequently, Sindh Sales Tax Ordinance, 2000 shall stand repealed from the date of this Service Act comes into force while respective services which are still incorporated in the Federal Excise Act, 2005 are expected to be deleted at the time of issuance of the Finance Act, 2011 otherwise such services would be redundant in view of the 18th Amendment of the Constitution of Pakistan. However, due to lack of resources and facilities, it is likely that the Federal Board of Revenue will continue to collect Sindh Sales Tax on Services [Business Recorder 17 June 2011]. It is pertinent to note that while shifting taxable services in the Service Act, no exemption has been allowed as are currently available to the taxpayer in the respective laws and the Rules issued thereunder. However, since Rules and / or Special Rules under the Service Act are to be issued by the SRB it is expected that the SRB may also provide such exemptions. It is also to be noted the newly sales tax on services is not adopting Value Added Tax [VAT] scheme. Thus, concept of input tax adjustment has been done away. However, SRB is empowered to allow certain and specified adjustments or refunds in respect of only services and not under VAT mode where both goods and services are allowed full adjustment in general. Thus, cost of services would be enhanced until restoration of the VAT scheme or reduction in the rate of tax.

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Salient Features

Rate of sales tax on services has universally been made 16% of the value of services. Value of services is the consideration including all Federal and Provincial duties and taxes, if any, which a person receives from the recipient excluding amount of sales tax [Section 5]. Sales tax has been levied on all services mentioned in the Second Schedule of the Service Act whether provided to resident or non-resident persons and without any exemption [Section 3]. Hence, all exemptions available to different service sectors through Federal Excise Act, 2005 or Sales Tax Ordinance, 2000 or Rules thereof are no more available in the Service Act. Sales tax on services is not kept under VAT mode regime. However, SRB may, with the approval of the Government allow certain adjustments or refunds in respect of only services. Thus, cost of services would be enhanced until restoration of the VAT scheme or reduction in the rate of tax. Services listed in the Second Schedule of the Service Act if provided to a resident person by non-resident shall be treated taxable service and the recipient of the service shall be liable to pay the sales tax [Section 3(2) & Section 9(2)]. Periodic services are treated as separate service [Section 7]. SRB empowered to allow exemption, amend Schedules, change or fix the rate, make rules or special rules and issue orders or instructions, etc. with or without approval of the Government. [Section 10,11,13,72 and 78]. Concept of tax on advance payment on services introduced [Section 17(2)]. The Government has been empowered to delegate power to FBR or any other Federal or provincial agency to administer the levy of sales tax with regard to only procedural matters, such as: Payment and Collection of Tax [Chapter-III] Registration [Chapter-IV] Bookkeeping and Audit Proceedings [Chapter-V] Returns [Chapter-VI] Appeals [Chapter-IX] General Administration excluding power to make rules, issue orders, etc. [Chapter-XII] ETC.

Majority of procedural laws introduced in the Service Act are verbatim to the procedural laws provided in the Sales Tax Act, 1990 while some concepts are borrowed from The General Sales Tax Bill, 2010 Sindh Sales Tax Ordinance, 2000 shall stand repealed from the date of this Service Act comes into force [Section 83] while respective services which are still incorporated in the Federal Excise Act, 2005 are expected to be deleted at the time of issuance of Finance Act, 2011 otherwise such services would be redundant in view of the 18th Amendment of the Constitution of Pakistan. Services of travel and inland carriage of goods by air have not been shifted and are still under the Federal Excise Act, 2005.

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Comparative Schedule of taxable services under the Sindh Sales Tax Act and Federal Excise Act 2005 / Provincial Ordinance 2000
Newly Sindh Sales Tax on services 2nd Schedule 98.12 Telecommunication services. Federal Excise Act, - Table II of 1st Schedule (Excisable Services) 98.12 Telecommunication services Sindh Sales Tax Remarks Ordinance, 2000

9812.1000 Telephone services 9812.1100 Fixed line voice telephone service 9812.1200 Wireless telephone 9812.1210 Cellular telephone 9812.1220 Wireless Local Loop telephone 9812.1300 Video telephone 9812.1400 Payphone cards 9812.1500 Prepaid calling cards 9812.1600 Voice mail service 9812.1700 Messaging service 9812.1710 Short Message service (SMS) 9812.1720 Multimedia message service (MMS) 9812.1910 Shifting of telephone connection 9812.1920 Installation of telephone extension 9812.1930 Provision of telephone extension 9812.1940 Changing of telephone connection 9812.1950 Conversion of NWD connection to non NWD or vice versa 9812.1960 Cost of telephone set 9812.1970 Restoration of telephone connection 9812.1990 Others 9812.2000 Bandwidth services 9812.2100 Copper line based 9812.2200 Fibre-optic based 9812.2300 Co-axial cable based 9812.2400 Microwave based 9812.2500 Satellite based 9812.2900 Others 9812.3000 Telegraph 9812.4000 Telex 9812.5000 Telefax 9812.5010 Store and forward fax services 9812.5090 Others 9812.6000 Internet services 9812.6100 Internet services including email services 9812.6110 Dial-up internet services 9812.6120 Broadband services for DSL connection 9812.6121 Copper line based 9812.6122 Fibre-optic based

9812.1000 Telephone services 9812.1100 Fixed line voice telephone service 9812.1200 Wireless telephone 9812.1210 Cellular telephone 9812.1220 Wireless Local Loop telephone 9812.1300 Video telephone 9812.1400 Payphone cards 9812.1500 Prepaid calling cards 9812.1600 Voice mail service 9812.1700 Messaging service 9812.1710 Short Message service (SMS) 9812.1720 Multimedia message service (MMS) 9812.1910 Shifting of telephone connection 9812.1920 Installation of telephone extension 9812.1930 Provision of telephone extension 9812.1940 Changing of telephone connection 9812.1950 Conversion of NWD connection to non NWD or vice versa 9812.1960 Cost of telephone set 9812.1970 Restoration of telephone connection 9812.1990 Others 9812.2000 Bandwidth services 9812.2100 Copper line based 9812.2200 Fibre-optic based 9812.2300 Co-axial cable based 9812.2400 Microwave based 9812.2500 Satellite based 9812.2900 Others 9812.3000 Telegraph 9812.4000 Telex 9812.5000 Telefax 9812.5010 Store and forward fax services 9812.5090 Others 9812.6000 Internet services 9812.6100 Internet services including email services 9812.6110 Dial-up internet services 9812.6120 Broadband services for DSL connection 9812.6121 Copper line based 9812.6122 Fibre-optic based

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Comparative Schedule of taxable services under the Sindh Sales Tax Act and Federal Excise Act 2005 / Provincial Ordinance 2000
Newly Sindh Sales Tax on services 2nd Schedule 9812.6123 9812.6124 9812.6125 9812.6129 9812.6130 Co-axial cable based Wireless based Satellite based Others Internet/email/Data/SMS/MMS services on WLL networks Internet/email/Data/SMS/MMS services on cellular mobile networks Others Data Communication Network services (DCNS) Copper Line based Co-axial cable based Fibre-optic based Wireless/Radio based Satellite based Others Value added data services Virtual private Network services (VPN) Digital Signature service Others Audiotext services Teletext services Trunk radio services Paging services Voice paging services Radio paging services Vehicle tracking services Burglar alarm services Others Services provided or rendered by hotels, restaurants, marriage halls, lawns, clubs and caterers. Services provided or rendered by hotels Services provided or rendered by restaurants Services provided or rendered by clubs Services provided or rendered by caterers, suppliers of food and drinks Ancillary services provided or rendered by hotels, restaurants, caterers Federal Excise Act, - Table II of 1st Schedule (Excisable Services) 9812.6123 9812.6124 9812.6125 9812.6129 9812.6130 Co-axial cable based Wireless based Satellite based Others Internet/email/Data/SMS/M MS services on WLL networks Internet/email/Data/SMS/M MS services on cellular mobile networks Others Data Communication Network services (DCNS) Copper Line based Co-axial cable based Fibre-optic based Wireless/Radio based Satellite based Others Value added data services Virtual private Network services (VPN) Digital Signature service Others Audiotext services Teletext services Trunk radio services Paging services Voice paging services Radio paging services Vehicle tracking services Burglar alarm services Others Sindh Sales Tax Ordinance, 2000 Remarks

9812.6140

9812.6140

9812.6190 9812.6200 9812.6210 9812.6220 9812.6230 9812.6240 9812.6250 9812.6290 9812.6300 9812.6310 9812.6320 9812.6390 9812.9000 9812.9100 9812.9200 9812.9300 9812.9400 9812.9410 9812.9490 9812.9500 9812.9090 98.01

9812.6190 9812.6200 9812.6210 9812.6220 9812.6230 9812.6240 9812.6250 9812.6290 9812.6300 9812.6310 9812.6320 9812.6390 9812.9000 9812.9100 9812.9200 9812.9300 9812.9400 9812.9410 9812.9490 9812.9500 9812.9090

9801.1000

Services provided or rendered by hotels

9801.2000 9801.4000

New insertion

9801.5000

Services provided or rendered by clubs Services provided or rendered by caterers

9801.6000

Partly new insertion New insertion

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Comparative Schedule of taxable services under the Sindh Sales Tax Act and Federal Excise Act 2005 / Provincial Ordinance 2000
Newly Sindh Sales Tax on services 2nd Schedule 98.02 9802.1000 9802.2000 9802.3000 9802.4000 Advertisement Advertisement on T.V Advertisement on radio Advertisement on closed circuit T.V. Advertisement in newspapers and periodicals, excluding classified advertisements. 9802.3000 9802.4000 9802.9000 Advertisement on closed circuit T.V. Advertisement in newspapers and periodicals (excluding classified advertisements) of hoarding boards, poles sign and sign boards Advertisements on cable T.V. network . Advertisement on T.V Advertisement on radio Federal Excise Act, - Table II of 1st Schedule (Excisable Services) Sindh Sales Tax Remarks Ordinance, 2000

9802.5000

Advertisement on cable T.V. network Advertising on poles Advertising on Billboards Other Advertisements like on web/internet etc Shipping agents Stevedores Ship management service Freight forwarding agents Customs Agents Ship chandlers Services provided or rendered by property developers or promoters for a) development of purchased or leased land for conversion into residential or commercial plots. b) construction of residential or commercial units.

9802.5000

New insertion 9805.1000 Shipping agents Stevedores New insertion New insertion Customs Agents Ship chandlers 9814.3000 Services provided or rendered by property developers or promoters for a) development of purchased or leased land for conversion into residential or commercial plots. b) construction of residential or commercial units Courier services New

9805.1000 9805.2000 9805.2100 9805.3000 9805.4000 9805.8000 9807.0000

9808.0000 9809.0000

Courier services Services provided or rendered by persons engaged in contractual execution of work or furnishing supplies.

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Comparative Schedule of taxable services under the Sindh Sales Tax Act and Federal Excise Act 2005 / Provincial Ordinance 2000
Newly Sindh Sales Tax on services 2nd Schedule 98.13 Services provided or rendered by banking companies, insurance companies, cooperative financing societies, modarabas, musharikas, leasing companies, foreign exchange dealers, non-banking financial institutions and other persons dealing in any such services. Services provided or rendered in respect of insurance to a policy holder by an insurer, including a reinsurer. Goods insurance Fire insurance Theft insurance Marine insurance Life insurance Other insurance including reinsurance. Services provided or rendered in respect of musharika financing and mudarba or leasing and non banking and any other leasing institution and non banking financial institutions. In case of such non banking financial institutions including but not limited to all non-interest based services provided or rendered against a consideration in the form of a fee or commission or charge. Services provided or rendered by banking companies in relation to: Guarantee Brokerage Letter of credit Issuance of pay order and demand draft Bill of exchange Transfer of money including telegraphic transfer, mail transfer and electronic transfer Bank guarantee Bill discounting commission Safe deposit lockers Safe vaults 9813.1600 9813.0000 Other insurance Services provided by banking Companies or nonbanking financial companies Partly new insertion Federal Excise Act, - Table II of 1st Schedule (Excisable Services) Sindh Sales Tax Remarks Ordinance, 2000

9813.1000

9813.1000

9813.1100 9813.1200 9813.1300 9813.1400 9813.1500 9813.1600

9813.1100 9813.1200 9813.1300 9813.1400

Services provided or rendered in respect of insurance to a policy holder by an insurer, including a reinsurer. Goods insurance Fire insurance Theft insurance Marine insurance New Insertion

9813.4000

9813.4000

9813.4100 9813.4200 9813.4300 9813.4400 9813.4500 9813.4600

9813.4100 9813.4200 9813.4300 9813.4400 9813.4500 9813.4600

Services provided or rendered by banking companies in relation to: Guarantee Brokerage Letter of credit Issuance of pay order and demand draft Bill of exchange Transfer of money including telegraphic transfer, mail transfer and electronic transfer Bank guarantee Bill discounting commission Safe deposit lockers Safe vaults

9813.4700 9813.4800 9813.4900 9813.4910

9813.4700 9813.4800 9813.4900 9813.4910

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Comparative Schedule of taxable services under the Sindh Sales Tax Act and Federal Excise Act 2005 / Provincial Ordinance 2000
Newly Sindh Sales Tax on services 2nd Schedule 9813.5000 Issuance,, processing and operation of credit and debit cards Commission and brokerage of foreign exchange dealings Automated Teller Machine operations, maintenance and management Service provided as banker to an issue Other Service provided or rendered by a foreign exchange dealer or exchange company or money changer Services provided or rendered by specified persons or businesses Stockbrokers Money exchanger Federal Excise Act, - Table II of 1st Schedule (Excisable Services) 9813.5000 Issuance,, processing and operation of credit and debit cards Commission and brokerage of foreign exchange dealings Automated Teller Machine operations, maintenance and management Service provided as banker to an issue Other Service provided or rendered by a foreign exchange dealer or exchange company or money changer Sindh Sales Tax Remarks Ordinance, 2000

9813.6000

9813.6000

9813.7000

9813.7000

9813.8000 9813.8100 9813.9000

9813.8000 9813.8100 9813.9000

98.19 9819.1000 9819.2000

9819.1000 9813.9000

9823.0000 9824.0000

Franchise services Construction services Services provided by terminal operators except terminal fee charges.

9823.0000 9819.9090

Services provided or rendered by stock brokers Service provided or rendered by a foreign exchange dealer or exchange company or money changer Franchise services New insertion Services provided by port and terminal operators in relation to imports excluding stevedoring services

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