The Sindh Sales Tax on Services Act, 2011 The Sindh Sales Tax on Services Rules, 2011

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1 A real time taxation support company Professional contribution by: Noman Iftikhar Khawaja Arif Hussain Ejaz (Advocate) The Sindh Sales Tax on Services Act, 2011 The Sindh Sales Tax on Services Rules, 2011 Commentary Under the Constitution of Pakistan, Sales tax on services has historically remained a Provincial domain which led to promulgations of Sales Tax on Services Ordinances simultaneously by each Province in 2000 to levy taxes on few services. Later on other services were also added through other modes like Federal Excise etc. The chargeability of sales tax remained with Provinces, but the assessment and collection powers were assigned to FBR. After constitutional reforms and consensus developed among the Federation and provinces on sales tax on services being entirely provincial domain, only Government of Sindh established Sindh Revenue Board (SRB) to manage, administrate, levy, assess and collect the Sales Tax on Services and subsequently Sindh Sales Tax on Services Bill, 2011 was passed unanimously by the Sindh Assembly on 6th June, 2011 and the Sindh Sales Tax on Services Act, 2011 alongwith Sindh Sales Tax on Services Rules, 2011 have been notified on 13th June, SRB is now collecting sales tax on the 'taxable services' w.e.f 1st July, 2011, in respect of services provided, rendered, initiated, and in Sindh. Sindh Sales Tax Ordinance, 2000 has been repealed. Services listed in the Sales Tax Ordinance, 2000 and Federal Excise Law have been brought under the ambit of the Sindh Sales Tax on Services Act, Few new services have additionally been subjected to levy of sales tax under the said Act. List of total services is provided in the First Schedule of the Sindh Sales Tax on Services Act, 2011 and list of taxable services are mentioned in the Second Schedule of the Sindh Sales Tax on services Act, Sindh Revenue Board issued a notification # S.R.B.Leg(1)/2011 dated 1 st July, 2011 regarding exemption of few services mentioned in the Second Schedule of the Sindh Sales Tax on Services Act, A list of total services alongwith taxable and exempt services is provided here for information and better understanding of the readers. LIST OF SERVICES AND TAXABLE SERVICES Black Color = Exempt Services Red Color = Taxable 19.5% Blue Color = Taxable 16% Violet Color = Exempt Through Notification 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 marriage halls and lawns

2 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, marriage halls, lawns, caterers Services provided or rendered by messes and hostels Other Advertisement Advertisement on T.V Advertisement on radio Advertisement on closed circuit T.V Advertisement in newspapers and periodicals (SRB.Leg(I)/2011 dated: ) Advertisement on cable T.V. network Advertisements on poles Advertisements on billboards Other Services provided or rendered by persons authorized to transact business on behalf of others Shipping agents Stevedores Ship management service Freight forwarding agents Customs agents Travel agents Tour operators Recruiting agents Advertising agents Ship chandlers Share transfer agent Sponsorship services Business support services Other Services provided or rendered by property developers and promoters Courier services Services provided or rendered in matters of hire Purchase or sale of moveable or immovable goods or property Property dealers Car/automobiles dealers Dealers of second hand goods other than automobiles other Services provided or rendered by persons engaged in contractual execution of work or furnishing supplies Services provided or rendered for personal care by beauty parlours/clinics, slimming clinics and others.

3 Services provided or rendered by laundries, dry cleaners Telecommunication services Telephone services Fixed line voice telephone service Wireless telephone Cellular telephone Wireless Local Loop telephone Video telephone Payphone cards Prepaid calling cards Voice mail service Messaging service Short Message service (SMS) Multimedia message service (MMS) Shifting of telephone connection Installation of telephone extension Provision of telephone extension Changing of telephone connection Conversion of NWD connection to non NWD or vice versa Cost of telephone set Restoration of telephone connection Others Bandwidth services Copper line based Fibre-optic based Co-axial cable based Microwave based Satellite based Others Telegraph Telex Telefax Store and forward fax services Others Internet services Internet services including services Dial-up internet services Broadband services for DSL connection Copper line based Fibre-optic based Co-axial cable based Wireless based Satellite based Others Internet/ /Data/SMS/MMS services on WLL networks Internet/ /Data/SMS/MMS services on cellular mobile networks Others Data Communication Network services (DCNS)

4 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 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. (SRB.Leg(I)/2011 dated: ) Goods insurance Fire insurance Theft insurance Marine insurance Life insurance (SRB.Leg(I)/2011 dated: ) Other insurance (SRB.Leg(I)/2011 dated: ) Services provided or rendered in respect of advances and loans Services provided or rendered in respect of leasing Financial leasing Commodity or equipment leasing Hire-purchase leasing Other Services provided or rendered in respect of musharika financing 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

5 Safe vaults 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 architects, town planners, contractors, property developers or promoters, interior decorators Architects or town planners Contractors of building (including water supply, gas supply and sanitary works), roads and bridges, electrical and mechanical works (including air conditioning), horticultural works, multi-discipline works (including turn-key projects) and similar other works Property developers or promoters Landscape designers Other Services provided or rendered by professionals and consultants etc Medical practitioners and consultants Legal practitioners and consultants Accountants and auditors Management consultants Technical, scientific, engineering consultants Software or IT based system development consultants Other consultants Services provided or rendered by pathological laboratories Services provided or rendered by medical diagnostic laboratories including X-Rays, CT Scan, M.R. Imaging etc Scientific laboratories Mechanical laboratories Chemical laboratories Electrical or electronic laboratories Other such laboratories Services provided or rendered by specialized agencies Security agency Credit rating agency Market research agency Other such agencies Services provided or rendered by specified persons or businesses Stockbrokers Under writers Indenters Commission agents

6 Packers Money exchanger Rent a car Prize bond dealers Surveyors Designers Outdoor photographer Art painter Cable TV operators Auctioneers Public relations services Management consultants Technical testing and analysis service Service provided by a registrar to an issue Others Services provided or rendered by specialized workshops or undertakings Auto-workshops Workshops for industrial machinery construction and earth- moving machinery or other special purpose machinery etc Workshops for electric or electronic equipments or appliances etc including computer hardware Car washing or similar service stations Other workshops Services provided or rendered in specified fields Healthcare center, gyms or physical fitness center etc Indoor sports and games center Baby care center Body massage center Pedicure center Services provided or rendered for specified purposes Fumigation services Maintenance or cleaning services Janitorial services Dredging or desilting services Other similar services Franchise services Construction services Consultancy services Management services including fund and asset management services Market Research agencies

7 Program producers Brokerage and indenting services Race Clubs General Insurance Agents Exhibition or convention services Data Processing and Provision of information, services of Engineers, handling and storage of goods Fashion designers Cable Operators Internet Café Pandal and Shamiana service Airport services Intellectual Property services Forward Contract services Packaging services Services provided or rendered in matters of hire Purchase or sale of moveable or immovable goods or property Property dealers Car/automobile dealers Dealers of second hand goods other than automobiles Cosmetic and Plastic Surgery Beauty Parlour/ Beauty Clinics HR Consultants Corporate Law Consultants Tax Consultants Human Resources & Personal Development Services Coaching Centres Vocational Centres Actuarial Services Training Services Tracking Services Security Alarm Services Human Resource Development Building Maintenance & Service Provider Quality Control Services (ISO certification Board) Services provided by Motels/guest houses & Farm houses. Debt collection Agencies Amusement Parks Call centres Film and Drama studios Entertainment Services Services provided in the matter of manufacturing or processing for other toll basis. URL: Page 7

8 1. Scope of Tax A list of all services is provided in the First Schedule of the Sindh Sales Tax Act, 2011 whereas a list of taxable services alongwith rate of sales tax is provided in the Second Schedule of the Sindh Sales Tax on Services Act, Rate of Sales Tax on telecommunication services is 19.5% while the rate of all other taxable services is 16%. Sales Tax on taxable services [defined in section 3] will be charged, levied and collected on the value of taxable services [defined in section 5]. 2. Taxable Service i) A taxable service is a service listed in the second schedule of this Act, which is provided by a registered person to a resident or non-resident person. ii) A taxable service is a service listed in the second schedule to this Act, which is provided by an un-registered / non-resident person to a resident person. iii) For the purposes of sub-section (2), where a person has one office in Sindh and other office outside Sindh. Both offices shall be treated as separate legal persons. iv) SRB may prescribe rules for determining the conditions under which a particular service will be considered to have been provided by a person from his registered office or place of business in Sindh. 3. Person liable to pay tax Following persons are liable to pay tax 1. Registered Person providing a service which is taxable by virtue of sub-section (1) of section 3 (Registered Person to Registered / Unregistered Person) 2. Person receiving the service which is taxable by virtue of sub-section (2) of section 3. (Un-registered Person to Registered / Unregistered Resident Person Resident of Sindh) 3. Input Tax Adjustment Registered Person can claim adjustment of sales tax paid on or in respect of any taxable services provided by him. In case of common input against taxable and exempt services, the input tax will be apportioned and portion of taxable services will be claimed. The registered person claiming input tax of goods used, consumed or utilized in providing of services at more than 20% of the output shall file scanned attachments of the evidences with all the necessary evidence based on which claim is made. The mechanism of tax adjustments through debit and credit notes have also been provided in the Sindh Sales Tax on Services Rules, URL: Page 8

9 4. Time, manner and mode of payment TIME: At the time of filing the return MANNER: A taxable service shall be considered to have been provided in the tax period during which: (i) (ii) (iii) it was provided to the recipient; an invoice for the value of the taxable service was sent to the recipient; or consideration for the same was received; whichever is earlier MODE: Through deposit in a bank designated by the Board; or Through such other mode and manner as may be specified by the Board. 5. Registration Chapter IV of the Sindh Sales Tax on Services Act, 2011 and Chapter II of the Sindh Sales Tax on Services Rules, 2011 deal with requirement and procedure of registration, voluntary registration, Compulsory registration, suspension and cancellation of registration, automatic grant of registration, change in particulars of registration, transfer of registration and de-registration. The following resident persons are required to be registered 1. Providing taxable services 2. Receiving taxable services A list of registered persons will be published on the web site of Sindh Revenue Board and the existing taxpayers will automatically be registered for Sindh Sales Tax on Services and shall be intimated through or SMS and by courier or post assigning them S as prefix to NTN [S+NTN]. 6. Records Registered person shall maintain records of taxable and exempt services as prescribed in section 26 and retain for a period of five years after the end of the tax period to which URL: Page 9

10 such records relates or till the final decision in any proceedings including proceedings for assessment, appeal, revision, reference or petition, whichever is later. 7. Return Every registered person shall file sales tax return on monthly basis through e-filing. Last date for payment of tax is 15 th of the following month whenever the last date for submission of return is 18 th of the following month. Board may also require any person to submit sales tax return on quarterly basis. Option of annual, special and final return is also available. Registered person may also revise his monthly, quarterly or annual return to correct any omission or wrong declaration made therein within 120 days of the filing of return. Where a registered person require to revise his return, resulting in payment of tax over the tax already paid on the original return, he may file his revised return and pay the differential amount of tax if any along with default surcharge without permission of the Board or any Officer authorized by the Board. But the return (without payment of tax) shall be revised with the permission of the Board or any Officer authorized by the Board subject to conditions or restrictions as the Board may impose. 8. Audit, Assessment and Appeal. Procedures for audit, assessment and appeals (Commissioner (Appeals) SRB, Appellate Tribunal and High Court) are available in the law. Procedure for proceedings by the Alternative Dispute Resolution Committee [ADRC] is also available. 9. Procedures for collection of Sales Tax on Services Special Procedures for collection and payment of Sales Tax on services by different service providers are available in Chapter VI of the Sindh Sales Tax on Services Rules, URL: Page 10

11 10. Offences and Penalties. A list of offences alongwith penalties are provided in section 43 of the Sindh Sales Tax on Services Act, Detail of Offences and Penalties are mentioned below. Offences Penalties Section of the Act to which offence has reference (1) (2) (3) 1. Any person who is required to apply for registration under this Act fails to make an application for registration Such person shall be liable to pay a penalty of 10,000 rupees or five per cent of the amount of sales tax he would have 24 before providing taxable services. been liable to pay had he been registered, whichever is higher. In the case of non- compliance of compulsory registration, the minimum penalty shall be 100,000 rupees. 2. Where any person fails to furnish a return within the due date. 3. Where any person fails to deposit the amount of tax due or any part thereof in the time or manner laid down under this Act or the rules made there under. Provided that such person who is required to get himself registered under this Act, fails to get registered within ninety days of providing taxable services, he shall be further be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to one year, or with fine which may extend to the amount of sales tax he would have been liable to pay had he been registered, or with both. Such person shall be liable to pay a penalty of 5,000 rupees provided that if a return is not filed within fifteen days of the due date, a penalty of 100 rupees for each day of default shall be paid. (a) Such person shall be liable to pay a penalty of 10,000 rupees or five per cent of the total tax payable for that period, (if default is more than 3 days) 30 8, 17, and 66 URL: Page 11

12 4. Any person who fails to maintain records required under this Act or the rules made there under. 5. Where a registered person who, without any reasonable cause, in non compliance with the provisions of this Act fails to produce records on receipt of a notice from the Board or any officer of the SRB directing him to produce such records. 6. Any person who knowingly or fraudulently, (a) submits a false or forged document to any officer of the SRB; or (b) destroys, alters, mutilates or falsifies the records; or (c) makes a false statement, false declaration, false representation, false personification, or gives any false information. whichever is higher. (b) If the amount of tax due is not paid even after the expiry of a period of sixty days of issuance of the notice for such payment by an officer of the SRB, not below the rank of Assistant Commissioner SRB, the person shall, further be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to three years, or with fine which may extend to the amount of unpaid tax, or with both. (c)no penalty shall be payable if any miscalculation is made for the first time during a year. Such person shall pay a penalty of 5,000 rupees or five per cent of the total tax payable for the tax period(s) for which he has failed to maintain the required record, whichever is higher. Where such a person is a company, it shall be liable to pay a penalty of 5000 rupees; Where such person is not a company he shall be liable to pay a penalty of 1000 rupees. Provided that where such person fails to produce the record within 60 days of receipt of a notice, he shall be liable to pay the penalty prescribed for the offence in sub-section (4) above. Such person shall be liable to pay a penalty of 25,000 rupees or one hundred per cent of the tax payable for the tax period(s) to which the offence relates, whichever is higher. Such person shall, further be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to five years, or with fine which may extend to an amount equal to the tax payable for the tax period(s) to which the offence 26, 27 and & 28 2 (41) and General URL: Page 12

13 7. Where any person who denies or obstructs the access of an authorized officer to the business premises, registered office or to any other place where records are kept, or otherwise refuses access to accounts or records. 8. Where any person commits, causes to commit or attempts to commit tax fraud, or abets or connives in the commission of tax fraud of 25,000 rupees or more. 9. Where any person violates any embargo placed on removal of goods in connection with recovery of tax. 10. Where any person who obstructs any officer of the SRB in the performance of his official duties under this Act or the rules made thereunder. relates, or with both. Such person shall be liable to pay a penalty of 25,000 rupees or one hundred per cent of the tax payable for the tax period(s) to which the offence relates, whichever is higher. Such persons shall, further be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to five years, or with a fine which may extend to an amount equal to the tax payable for the tax period(s) to which the offence relates, or with both. Such person shall be liable to pay penalty of up to 500,000 rupees, but not less than 25,000 rupees, or one hundred per cent of the tax payable for the tax period(s) to which the offence relates. Such person shall, further be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to five years, or with fine which may extend to an amount equal to the tax payable for the tax period(s) to which the offence relates, or with both. Such person shall be liable to pay a penalty of 25,000 rupees or ten per cent of the amount of the tax sought to be recovered, whichever is higher. Such person shall, further be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to one year, or with fine which may extend to amount equal to the amount of tax sought to be recovered, or with both. Such person shall be liable to pay a penalty of 25,000 rupees or one hundred per cent of the tax payable for the tax period(s) to which the offence relates, whichever is higher. 27, 28 and 51 2(41) URL: Page 13

14 12. Where any person who contravenes any provision of this Act or the rules made thereunder for which no penalty has specifically, been provided in this section 13. Where any person repeats an offence for which a penalty is provided under this Act 14. Where any person - (a) knowingly and without lawful authority gains access to or attempts to gain access to the computerized system; or (b) unauthorized uses or discloses or publishes or otherwise disseminates information obtained from the computerized system; or (c) falsifies any record or information stored in the computerized system; or (d) knowingly or dishonestly damages or impairs the computerized system; or (e) knowingly or dishonestly damages or impairs any duplicate tape or disc or other medium on which any information Provided that such a person shall be further liable upon conviction by a Special Judge to imprisonment for a term which may extend to one year or with fine not exceeding 50,000 rupees or with both. Such person shall be liable to pay a penalty of 10,000 rupees or three per cent of the tax payable for the tax period(s) to which the offence relates, whichever is higher. Such person shall be liable to pay twice the amount of penalty provided under the Act for the said offence Such person shall pay a penalty of 25,000 rupees or one hundred per cent of the amount equal to the loss caused to sales tax revenue. Such person shall, further be liable, upon conviction by the Special Judge, to imprisonment for a term which may extend to one year, or with fine which may extend to an amount equal to the loss caused to sales tax revenue, or with both. General General 73 *********************** This document contains comments, which represent our interpretation and point of view, and it is recommend that while considering their application to any particular case, reference be made to the specific wordings of the relevant statutes. Further we accept no responsibility or liability for any losses occasioned as a result of reliance on the information included in this document. URL: Page 14