Karachi: Please refer to your telephonic discussion with our Mr. Saud ul Hassan, wherein you had sought our opinion on the applicability of the recent enacted Sindh Sales Tax on Services Act, 2011 (SSTS Act). In this respect, we are pleased to give our comments herein below.
As you would be aware sales tax on certain services was imposed either through the Federal Excise Act, 2005 as Federal Excise Duty (FED) in sales tax mode or thorough the four Provincial Sales Tax Services Ordinance of 2000 and Islamabad Capital Territory (Tax on Services) Ordinance 2001, (hereby referred to as Provincial Ordinance). The Provinces had authorized Federal Board of Revenue (FBR) to manage Sales Tax on services on their behalf through their Ordinance.
New pursuant to the 7th NFC award the Government of Sindh (GoS) decided to impose, assess and collect sales tax on services themselves. Accordingly the Sindh Revenue Board (SRB) has been established to manage, supervise and take all such actions as necessary towards the administration of sales tax on services in Sindh.
The GoS has recently promulgated the Sindh Sales Tax on Services Act, 2011 (SSTS Act) thorough which the Sindh Sales Tax Ordinance, 2000 has been repeated. The SSTS Act now prescribes sales tax on services rendered in the Province of Sindh at the rate specified in its second schedule with effect from 01 July, 2011. Further, FBR thorough a Press release has announced that effective 01 July 2011. FED on such services that are now liable to Provincial sales tax shall be withdrawn in order to avoid double taxation. However no notification has been issued in this regard. Nevertheless once FED is withdraw applicability of sales tax on services would fall within the respective Provincial Ordinances. Therefore, it is apparent that FED would no longer be applicable on such services with effect from 01, July 2011.
Sales Tax on Services of Stock Brokers
The SSTS Act has specified all those services as taxable which were liable to sales tax either through Provincial Ordinance or as FED in sales tax mode up to 30 June 2011, including services of stock brokers, Stock broker services are now liable to sales tax on services at the rate of 16% vide the SSTS Act. Moreover, we note that Punjab and Khyber Pakhtunkhwa Sales Tax Ordinance, 2000 have also been updated in the same manner and services provided by stockbrokers are also liable to sales tax under their respective provincial ordinances. However, to the best of our knowledge, Islamabad Capital territory and Balochistan Sales Tax Ordinance, 2000 have not as yet made amendments to incorporate the services provided by stock brokers as being subject to sales tax in their respective jurisdiction.
The Sindh Sales Tax on Services Rules, 2011 (Rules) stipulate the procedure for application and collection of sales tax on taxable services rendered in the province. Rule 41 of the Rules states the procedure for collection of sales tax by Stockbrokers. Under the said Rule, the value of taxable services for the purpose of levy of sales tax would be the gross commission charged from clients in respect of purchase or sale of shares in a Stock Exchange. Therefore, mentioning FED on tax invoices issued under the SSTS Act is not required and instead the words “Sindh Sales Tax” could be mentioned in tax invoices issued.
It further states that stock brokers would be required to maintain the records as stipulated in the SSTS Act in such manner as would enable distinct ascertainment of payment of tax due,
It is also pertinent to note that SRB can only exercise the applicability of sales tax within the provinces of Sindh and the SRB effective from 01 July 2011 would be managing sales tax on services of Sindh independently. In respect of other Provinces, we understand that the FBR would continue to manage sales tax on services on behalf of the respective Provinces as has been done in the past.
Under the SSTS Act and the Rules the service provider shall be entitled to claim input tax credit for the tax paid on account of taxable purchases and utilities like telephone, gas and electricity consumed proportionately for furtherance of taxable activity, against its output tax liability.
However no input tax adjustment would be allowed against the purchase invoice or utility bill, which is not in the name of the service provider and/or dose not contain his registration number. In case the utility bill is not in the name of service provider, input tax against the same may be allowed only if the bill contains the service provider’s registration number and shows the same business address as has been declared for sales tax purposes.
It is pertinent to note that where a service provider is rendering taxable as well as non-taxable services, the service provider can claim only such proportion of input tax as is attributable to the taxable services.
Basically there is no change as far as claiming of input tax is concerned.
Our opinion / advice is framed based on the facts and assumptions that you have provided to us. Any inaccuracy therein could have a material impact on our opinion or recommendation and, accordingly, we expect that, on such inaccuracy coming to your knowledge, you will inform us immediately. Also, our opinion/advice is based on the law as applicable on the date of opinion/advice. The tax laws are subject to changes from time to time and, as such, any change therein may affect the advice contained in our opinion/advice.
We are not under an obligation to update our advice for events and circumstances occurring after the date of this opinion/advice, unless specifically requested. Further, tax advice is a matter of interpretation of law and is based on our experience with the tax authorities. Accordingly, it cannot be said with certainly that the opinion expressed or advice given above will be accepted by the tax authorities.
We do not, in giving this opinion/advice, accept or assume responsibility for any other purpose or to any other person to whom this opinion is shown or in whose hands it may come, unless expressly agreed by us in writing.
Any U.S. advice contained in the body of this advice was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.
Notice to KSE Members on Sindh Sales Tax
Kindly refer to the above subject, in this respect we would appreciate if you may kindly arrange for clarification regarding the following:
1. Whether the KSE Members are liable to pay Sindh Sales Tax on Services to be provided by them. It may be please noted that this becomes important because the Federal Board of Revenue (FBR) has so far not issued any notification regarding withdrawal of FED.
2. In continuation to the above, in case the KSE Members are liable to pay Sindh Sales Tax on Services, it will be appreciated if the timing and mechanism for issuance of any new registration numbers to be communicated to the KSE Members is intimated.
3. Moreover, it is requested that applicable procedures/ rules regarding branch offices of KSE Members in provinces other then Sindh are intimated especially as to what would happened in case if some brokers have branch offices in the provinces other then Sindh, in respect of issuance of invoices, registration of branches, filing of returns of such branches and admissibility of input tax against such taxable services.
For more information, contact:
Karachi Stock Exchange
Tel: +9221 111 001 122
Fax: +9221 3241 0825, +9221 3241 5136