KCCI wants removal of service tax on indenters

Says industries and businesses have and will move out of Sindh.

KARACHI: In the recently unveiled Sindh Budget 2015-16, the provincial government had introduced a service tax of 14% on indenters, which proved to be a particular sour point for the Karachi Chamber of Commerce and Industry (KCCI).

KCCI President Iftikhar Ahmed Vohra urged the government to withdraw this tax, warning that as a result of this, indenting agents will register in other provinces.

In a letter to Sindh Minister for Finance Murad Ali Shah, KCCI pointed out that a number of industries and businesses have already moved out of Sindh due to the security situation and harassment on the part of tax authorities under various pretexts.

“It is also likely that many indenters will retain a major part of their earnings outside Pakistan, which will be a loss of foreign exchange for the country and also a loss in withholding tax (WHT) collection,” he added.

Vohra was of the view that indenters are not liable to pay service tax because they are not providing any local services. Rather, the indenters are engaged in export of service to foreign principals and paying 5% WHT to the federal government on such export earnings.

“The earning of indenting agents is considered as export earnings which do not come under the purview of service tax by the province,” he added.

He also mentioned that indenters work on a very low rate of commission and face fierce competition. They negotiate with foreign suppliers for the most competitive prices of raw materials and other products, at a commission as low as 0.5% to 1%.

Within these meagre margins, they have to meet their operating expenses and travel expenses as well. “A service tax of 14% over and above the 5% WHT (Income Tax) is therefore impossible to pay for indenters,” he stressed.

Published in The Express Tribune, June 27^th, 2015.

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