Provincial Sales Tax and Federal Excise Duty on Services Collected as Sales Tax

1. Provincial Sales Tax and Federal Excise Duty on Services Collected as Sales Tax By Syed Hammad Raza Zaidi FCMA

2. Scope of the Presentation • Introduction and Back ground • Legislation by Provinces and ICT • Excise Duty in Sales Tax mode • Issues for further deliberation • Comments / Observation ,Q & A

3. Introduction • VAT as principal indifferent to profit and loss during the course of transactions; • Bifurcation of certain transactions involving both supply of goods and rendering of services (like getting repaired a car or dining in a high quality restaurant ) • Constitution limitation to the levy of Sales Tax on services (falling in the “residuary category” ) • Excise being the traditional levy • Moving towards VAT mechanism ; hence extending cover of Sales Tax through Provinces to the services and Excise in Sales Tax mode

4. Sales Tax on Services • Legislation by Provinces and ICT; • (Punjab Sales Tax Ordinance 2000) • (NWFP Sales Tax Ordinance 2000) • (Sindh Sales Tax Ordinance 2000) • (Balochistan Sales Tax Ordinance 2000) • (ICT Islamabad Capital Territory Sales Tax Ordinance 2001)

5. Salient Feature of Sales Tax on Services • Effective Date , July 1st 2000 in provinces. • Territorial Jurisdiction (Respective Provinces) and ICT • The ordinance extends to whole of the Punjab and came into force on and from 1st day of July, 2000. • Rate of 15% of the value of taxable services rendered or provided. • CBR’ s authority and responsibility

6. Salient Feature of Sales Tax on Services(contd) Scope (a) Services Covered Services provided or rendered by hotels, marriage halls, lawns and caterers; (b) Advertisements on TV and radio excluding advertisements – • if sponsored by a Government Agency for health education; • if sponsored by Population Welfare Division relating to Sathi educational promotion campaign funded by USAID; and • public service messages if telecast on TV by World Wild Life Funds for nature and UNICEF. (c) Services provided or rendered by persons authorized to transact business on behalf of customs agents, ship chandlers and stevedores; (d) Courier services. • (Contd)

7. Salient Feature of Sales Tax on Services(Contd) • Machinery provisions of Sales Tax Act 1990 • Enforcement by CBR • Notifications (SRO’s) by CBR (Revenue Division) • Adjudication etc • Generally Replacement of Excise Duty • Comparison with and Difference from AJK legislation on Sales Tax

8. Excise Duty in Sales Tax mode • Federal Subject • Like Sales Tax (under Sales Tax Act 1990): Enforcement and application • Rates (a) 15% of the value of the services • (b) 5% of the value of the services • (c) Specific rate • Major Areas Covered Telecommunication services; 15% Air travel; 15% Cargo by air: 15% (Contd)

9. Excise Duty in Sales Tax mode(Contd) • Areas Covered (contd) • Insurance 5% • Shipping Agents 15% • Banking services 5% • Cable TV operators Rs 25 per connection • Franchise Service 5 %

10. Excise Duty in Sales Tax mode(Contd) • SPECIAL PROCEDURE FOR PERSONS PROVIDING OR RENDERING SERVICES SUBJECT TO SALES TAX UNDER THE PROVINCIAL LAWS (CH. X OF SPECIAL PROCEDURE RULES, 2006) • Fixation of Values and certain exemptions like Advertisements on T.V. and Radio; Services provided by stevedores • Exemption to Courier Services for internal correspondence • SPECIAL PROCEDURE FOR PAYMENT OF SALES TAX ON SUPPLY OF FOOD (CH. IX OF SPECIAL PROCEDURE RULES, 2006) • food, drinks and other eatables supplied by hotels, restaurants, clubs, caterers, parlour, kitchens and other such similar establishments, whether for consumption inside the premises of such establishments, or for supply for outside consumption including consumption in the canteens and messes, etc. • Every person supplying food, in or from the premises of club, caterers, kitchens, hotels or restaurants shall be required to charge and pay sales tax at the rate specified in sub-section (1) of section 3 of the Sales Tax Act irrespective of the fact that the food is consumed in that premises or supplied or catered outside or supplied as ‘take-away’. • The sales tax on food served in a tax period shall be calculated in accordance with the following formula: Total value of supply due from Amount of Sales Tax = consumer or recipient of food x Rate of sales tax 100 + rate of sales tax • The food supplied by flight-kitchens on-board the conveyance leaving for a destination outside Pakistan shall be zero-rated

11. Issues for Further Deliberation Threshold Rs 5 million; Bifurcation of Services rendered and Goods supplied (dining in a restaurant of a five star hotel with or without live music; or Supply of software); Manufacturer v service provider ; composite character Input tax out put apportionment in both cases A political issue :generation of tax /revenue at the place of consumption v. at place of registered office of the company/ legal entity.

12. Issues for Further Deliberation(Cont) Burden on the ones already paying taxes Unorganized sector’ s evasion Compliance v enforcement Further legislation to incorporate future changes in Sales Tax Act ; Exemption regime Simplification as in case AJK legislation (Future changes in Sales Tax Act 1990) to become part automatically

13. Comments / Observation ,Q & A

14. Thanks