Punjab to collect sales tax on services consumed in province

Decision based on fundamental value added tax principle.

LAHORE: The Punjab Revenue Authority (PRA) will collect sales tax on services consumed in the province, ignoring where the services were rendered, following enactment of the Punjab Sales Tax on Services Act 2012 from the first of July, The Express Tribune has learnt.

“The tax will be collected under the fundamental value added tax (VAT) principle and an agreement between the federation and provinces,” a PRA official said but requested anonymity.

“It was agreed between the federation and provinces that provincial sales tax on services will be based on the fundamental VAT principle of consumption, which means services, consumed in Punjab, will be liable to sales tax in the province,” said PRA Chairperson Iftikhar Qutab while taking to The Express Tribune.

Keeping this principle in view, a separate Section 4 had been included in the Punjab Sales Tax on Services Act 2012, he said, adding this section embodied the universally accepted VAT principle which is based on the premise that VAT is primarily a consumption or, in other words, an expenditure tax.

After the passage of 18th Constitution Amendment, the provinces have been empowered to collect sales tax at the rate of 16% on various services provided by private firms and individuals.

The Punjab’s move comes in the backdrop of its dispute with Sindh over collection of sales tax on services like those of customs agents, shipping agents, stevedores and ship handlers. Sindh argues that these services are rendered at the Karachi Port, therefore, the Sindh Revenue Board will collect the sales tax. However, Punjab maintains that although these services are rendered in Sindh, these were consumed in Punjab, so it will collect sales tax.

The PRA official said the issue was taken up with the Federal Board of Revenue (FBR) and Finance Division and after marathon discussions, it was decided in principle that sales tax would be collected under the fundamental VAT principle of consumption.

In the light of Punjab Sales Tax on Services Act, the PRA has written letters to 14 collectors of customs (Karachi, Hyderabad, Gadani, Islamabad and in Punjab), saying sales tax on services provided in Punjab for consumption in the province in respect of cargo imported into or exported from Punjab through customs ports/stations located in the province would be deposited with the PRA.

It further said the Punjab government was entitled to collect sales tax on services provided out of Punjab but meant for consumption in the province. This covers services provided in respect of cargo imported for Punjab but shipped, handled or cleared outside Punjab. This also includes cargo exported from Punjab but shipped, handled or cleared outside the province.

The PRA directed customs agents, shipping agents, stevedores and ship handlers registered under the Sales Tax Act 1990 or Punjab Sales Tax on Services Act 2012 to deduct sales tax on relevant sales tax invoices and deposit the same with the Punjab government.

The official said the PRA had put in place a tax collection mechanism and would meet the target of sales tax on services for July.

Published in The Express Tribune, August 2^nd, 2012.