Tax assessment: Info about services rented for Orange Line sought

Contractors say PRA lacks jurisdiction over public sector development projects

LAHORE: The Punjab Revenue Authority (PRA) has sought information from the Orange Line Metro Train (OLMT) project contractors about equipment and machinery rented from third parties for assessment of sales tax on these services.

Speaking to The Express Tribune, one of the project contractors held that there was no need for them to share the information with the authority. The contractor said his company was registered with the Federal Board of Revenue (FBR) and that the PRA had no jurisdiction over public sector development projects, like the OLMT.

Through separate letters, the PRA has asked engineering contractors for OLMT package 1 and package 2, Habib Construction Service (HCS) and Maqbool Construction, to disclose details of the services rented for the project from third party sources, PRA Additional Commissioner Salman Ali told The Tribune on Wednesday.

He said public sector development projects were exempt from payment of provincial services sales tax. However, he said, under the Punjab Sales Tax on Services Act, 2012 the contractors were required to pay taxes on services rented from third party vendors. He said this practice was followed all over the world. “If a company has rented construction equipment or machinery from a third party vendor, it has to pay the sales tax on these rental services. There is no tax exemption in rental services for public sector projects,” he said.

Ali said construction services were taxable under the Punjab Sales Tax Act on Services. The only exemption was for services rendered in a public sector project by the contractors themselves. He said all companies offering construction services in the province were required to be registered with the PRA.

HCS chief executive officer (CEO) Shahid Saleem said the OLMT project did not fall under the PRA’s jurisdiction. “We are registered with the FBR and are paying our taxes. We work only in the public sector so there is no need to register with the PRA.”

Saleem said his company was complying with the tax regulations. “The government is deducting a seven percent withholding tax from our sales invoices as per the law. We’re collecting and depositing income tax on the behalf of our employees and vendors,” he said.

The HCS CEO said there was no mention of the need for payment of sales tax on services rented for the project at the time of the award of the contract. “The government has already saved more than Rs500 million in the project cost,” he said. He said at the amount negotiated between the government and the contractors it would be impossible for the latter to pay a provincial sales tax. “We are also paying customs duty on import of construction machinery.”

Published in The Express Tribune, May 23^rd, 2016.