#1Concepts of Federal Sales Tax & Sindh Sales Tax Laws Tuesday, 26 January 2022 @ KTBA MOORE Shekha Mufti#2AGENDA Overview Scope of Taxes Adjustments Value of Goods & Services & Tax Schedules Federal & Provincial Sales Tax Laws MOORE Shekha Mufti 2#3MOORE Shekha Mufti Overview 3#4Overview Tax Structure in Pakistan: Direct Tax: Indirect Taxes: Levy of Indirect Taxes in Pakistan: Indirect Taxes on Goods: Indirect Taxes on Services: Levy of Sales Tax on Goods: Levy of Sales Tax on Services: ☐ Chargeability Provisions at Tax Laws. ☐ Adjustments ☐ Liability for Payment of Taxes ☐ Schedules Direct Tax & Indirect Taxes Income Tax Sales Tax Federal Excise Duty / Customs Duty Goods & Services Federal Government- FBR Provincial Governments- SRB, PRA, KPRA, BRA Federal Sales Tax Act, 1990 Sindh Sales Tax on Services Act, 2011 MOORE Shekha Mufti 4#5FEDERAL SALES TAX ACT, 1990 PREAMBLE Levy of Sales Tax on Sale, Importation, Exportation, Manufacture or Consumption. MOORE Shekha Mufti of Goods 5#6Mechanism in Supply of Goods Supplier, Recipient & Consideration Supply S MOORE Shekha Mufti Consideration Cash/in kind (Value of Supply) R 6#7What is Sales Tax [GST]? S GST is charged and collected on supply of goods by registered person GST is a multi-stage levy which is charged at each stage in the supply chain. At the time of import, the importer is responsible to pay GST. At the time of sale, the supplier is liable to pay to exchequer GST paid on purchases and import of goods is adjusted from GST due on account of supplies of goods GST (GST) now applies in over 167 countries at varying rates MOORE Shekha Mufti 7#8Registered Person A person who carries on a taxable activity and is registered or required to apply for registration. CB MOORE Shekha Mufti ୦୦ 8#9General Principles of GST GST Formula Output Tax GST to Tax Office Input Tax GST Payable GST charged at the point of 20,000 Sale (Output) Less: GST paid on purchases (Input) (7,000) Less GST paid on import (Input) (10,000) Net GST Payable to Government 3,000 MOORE Shekha Mufti 6#10GST Computation in Supply Chain Value of Supply - Manufacturer 850 Sales Tax @17% 145 Total Price including Sales Tax 995 Payable to Manufacturer by Distributor Value of Supply- Distributor 950 Distributor Margin - Rs.100 Sales Tax @ 17% 162 Total Price including Sales Tax 1,112 Payable to Distributor by Trader Payable to Government by Distributor: Output-Input 17 Value of Supply - Trader Sales Tax @ 17% Total Price 1000 Trader Margin - Rs.50 170 1,170 Payable to Trader by Retailer Payable to Government by Trader: Output- Input 8 Retailer sold to Consumer MOORE Shekha Mufti 1,200 Retailer Margin - Rs.30 10#11Section-3: Situations for Levy of Sales Tax Situation-1 Sales Tax shall be @ 17% of value of taxable supplies made by a registered person in the course or furtherance of taxable activity Situation-2 Sales Tax shall be @ 17% of Value of Taxable Goods imported into Pakistan MOORE Shekha Mufti 11#12Section-3: Situations for Levy of Sales Tax Situation-3 Taxable supplies and import of goods specified at Third Schedule shall be charged @ 17% ST or @ Reduced ST as provided at Eight Schedule on Retail Price. Sales Tax and Retail Price shall be legibly, prominently and indelibly. printed or embossed by the manufacturer or importer on such goods. MOORE Shekha Mufti 12#13ST Payment on Goods at Retail Price Retail Price GST Computation for Tea in Supply Chain Retail Price + Sales Tax=Consumer Price RP Set by Manufacturer Sales Tax @ 17% 1,000 170 Consumer Price 1,170 CP Mentioned at Tea Packet Distributor Price 850 Sales Tax @ 17% Total 170 1,020 Payable to Manufacturer No Tax Liabilit Retailer Price 950 y Output Tax @ 17% 170 Total 1,120 Distributor Margin - Rs.100 Payable to Distributor Consumer Price 1,170 Payable to Retailer having Margin - Rs.50#14Section-3: Situations for Levy of Sales Tax Situation-4 Sales Tax shall be levied on higher or lower rate in respect of goods as specified in Notification- Goods specified at Eight Schedule Situation-5 Goods specified in Ninth & Tenth Schedule shall be charged to tax at such rates. and subject to conditions as given thereto. MOORE Shekha Mufti 14#15Section-3: Situations for Levy of Sales Tax Situation-6 Extra Sales Tax shall be levied in addition to Standard Sales Tax @ 17% Goods Value of Taxable Supply Amount of Standard Extra Tax @3% ST @ 17% Total Value Including ST Electricity 1000 170 30 1,200 MOORE Shekha Mufti 15#16Section-3: Situations for Levy of Sales Tax Situation-7 Tax to be withheld and deposited by the buyer as withholding agent. @rate specified in Eleventh Schedule. MOORE Shekha Mufti 16#17Section-3: Situations for Levy of Sales Tax Situation-8 Minimum Value Addition Tax [MVA] to be paid by importer @3% in addition to sales tax @ 17% at import stage as specified at Twelfth Schedule MVA adjustable from output tax both for importer & manufacturer ✓ Certain Class of Persons Excluded from MVA: See Twelfth Schedule MOORE Shekha Mufti 17#18Section-3: Situations for Levy of Sales Tax Situation-09 Retailers-Tier-1 Retailer operating as unit of National or International Chain of Store Retailer operating in Air Conditioned Mall/Shopping Plaza excluding Kiosks. Cumulative electricity bill during Last 12 months Exceeds Rs.1,200,000 Wholesaler cum retailer engaged in bulk import & supplies at wholesale or retail Retailer's Shop of 1,000 square feet in area or more Retailer's Furniture Shop of 2,000 square feet in area or more MOORE Shekha Mufti 18#19Section-3: Situations for Levy of Sales Tax Taxation -Tier-1 Retailers Normal tax regime @ 17% with input tax adjustment entitlement On standard / applicable rate instead of reduced rates provided retail outlets integrated for real time reporting of sales with FBR's Computerized System Integration retail outlets for real time reporting sales with Board's Computerized System. In case, retailer failed to comply such provision, adjustable input tax for whole of tax period will be reduced by 65% MOORE Shekha Mufti 199 19#20Taxation of Tier-1 Retailers What is Integration?- Tier-1 Retailers MOORE Shekha Mufti 20 20#21Section-3: Situations for Levy of Sales Tax Situation-10 Taxation Other Than Tier-1 Retailers - In addition to 17%, Following Tax to be charged through monthly. electricity bills: @ 5% Monthly Bill not Exceeds Rs. 20,000 or - @ 7.5% Monthly Bill Exceeds Rs. 20,000 Issuance of order by Commissioner Inland Revenue over the person's classification as Tier-1 Retailer or otherwise. MOORE Shekha Mufti 21 21#22Schedules under ST Act THE THIRD SCHEDULE See section 3 ST @ 17% on Retail Price as fixed by Manufacturer / Importer 32 Goods THE FIFTH SCHEDULE See section 4 ST @ 0% on Goods Specified at Schedule More than 10 Goods - THE SIXTH SCHEDULE See section 13 Exemption from ST on Goods Table-1 Import or Supplies- More than 150 Goods - Table-2: Local Supplies only - More than 20 Goods - Table-3: Import of machinery, plant, equipment & apparatus including capital goods subject to conditions- 20 Goods MOORE Shekha Mufti 22#23Schedules under ST Act THE EIGHTH SCHEDULE See Clause (aa) of sub-section (2) of section 3 Reduced ST @ 2 or 5 or 10% Table-1 Import or Supplies- 70 Goods Table-2: Import only - 09 Goods [machinery, plant, equipment & apparatus including capital goods subject to conditions] THE NINTH SCHEDULE See sub-section (3B) of section 3 Fixed Amount & @ 17% - ST on Mobile THE TENTH SCHEDULE See sub-section (1B) of Section 13 Fixed ST on Brick Region-Wise MOORE Shekha Mufti 23#24Schedules under ST Act THE ELEVENTH SCHEDULE See sub-section (7) of Section 3 Sales Tax Withholding: Various ST Rates & Withholding Agents THE TWEVETH SCHEDULE See sub-section (2) of Section 7A Minimum Value Addition ST @ 3% on Import Value THE THIRTEENTH SCHEDULE See sub-section (9AA) of Section 3 Minimum Production on Specified Goods MOORE Shekha Mufti 24 24#25Case Study Taxation Other Than Tier-1 Retailers - Whether such retailer required sales tax registration? Whether such retailer will be liable to further tax? MOORE Shekha Mufti 25#26Section-3: Situations for Levy of Sales Tax Further Tax Where taxable supplies are made to a person who has not obtained registration from FBR for sales tax, he will be charged further tax @ 3% in addition to standard sales tax of 17% on value of taxable supplies. Goods Description Value of Supply Amount of ST @17% Amount of Further Total Amount Including ST Tax @3% TV 1000 170 30 MOORE Shekha Mufti 1,200 26#27Section-3: Situations for Levy of Sales Tax Exclusion from Further Tax- SRO 648 of 2013 ☐ Electrical Energy ☐ Natural Gas Motor spirit oil, jet fuel, kerosene oil & fuel oil ☐ Goods sold by retailers to end consumers ☐ Supply of goods directly sold to end consumers ☐ Items falling under Third & Fifth Schedule of ST Act. ☐ Second hand worn clothing and other worn articles. ☐ Fertilizer MOORE Shekha Mufti 27#28Section-3: Situations for Levy of Sales Tax Exclusion from Further Tax- SRO 648 of 2013 ☐ Supplies by Steel Melters, re-rollers, and ship breakers. ☐ Supplies covered under Fifth Schedule to ST Act ☐ Supplies by foam or spring mattresses and other foam products for household use ☐ Supplies made to Government semi-government and statutory regulatory. bodies ☐ Supply of white crystalline sugar MOORE Shekha Mufti 28#29Section-3: Liability for Payment of Sales Tax In the case of supply of goods, of the person making supply [Supplier]. ☐ In the case of supply of goods, of the person receiving supply as notified by Federal Government [Recipient] ☐ In the case of goods imported into Pakistan, of person importing the goods [Importer]. MOORE Shekha Mufti 29#30Section 2(46)- Value of Taxable Supply Value of taxable supply is gross amount of consideration in money inclusive of all Federal & Provincial duties, taxes, levies and charges receives from recipient of goods excluding the amount of sales tax under the Act. Description Cost +) Overheads +) Local taxes on goods +) Profit Margin PKR 100,000 25,000 10,000 5,000 3,000 -) Discount (3000) Value of supply on which GST to be imposed 140,000 MOORE Shekha Mufti +) Expenses paid on behalf of customers#31Section 2(46)- Value of Taxable Supply Description A supply is made in the following case: Between related persons, and Consideration for supply for no or reduced consideration less than the price as offered to other than associated persons Consideration in kind or partly in kind and partly in money - Value of Supply Open market price Price at which good provided to other persons Open market price Taxable supply made to consumer from general public on instalment basis on price inclusive of mark up or charges – higher Open market price than open market price In case of trade discounts, invoice must show discounted price and discount to be in conformity with normal business practice Special nature of transaction where difficult to ascertain value or reason to believe that value of supply The value of supply in case of advance receipt from customers MOORE Shekha Mufti Discounted price Open market price Amount received to be worked back#32Value of Taxable Supply Description In case of imported goods, Value not declared correctly at invoice Toll manufacture Where Goods provided at higher value as fixed by Board Value of Supply Value determined under Section 25 by Customs Authorities including Customs Duty & FED. Goods in Third Schedule on Retail Price Value determined by Valuation Committee Conversion Charges Value at which goods provided until otherwise directed by Board MOORE Shekha Mufti#33Determination of Value for Imported Goods Assessed Value: 200,000 Customs Duty: 10,000 Value for FED Computation 210,000 Rate of FED @ 5%: 10,500 Value for ST Computation 220,500 Sales Tax@ 17% 37,485 MOORE Shekha Mufti HELPING YOU THRIVE IN A CHANGING WORLD 33#34Section-4: Zero Rating of Sales Tax Following goods shall be charged to Sales Tax @ 0%:- ✓ Goods exported ✓ Goods specified in Fifth Schedule; Supply of stores and provisions for consumption aboard a conveyance proceeding to a destination outside Pakistan, ✓ Goods specified by Notification in case of necessary circumstances MOORE Shekha Mufti 34#35Section-4: Goods Not Covered for Zero Rating of Sales Tax ✓ Goods exported, but have been or are intended to be re-imported into Pakistan; ✓ Have been entered for export, but are not exported; ✓ Have been exported to a country specified by the Federal Government Facility of input tax adjustment have been restricted by Federal Government MOORE Shekha Mufti 35 55#36Case Study Zero Rating Vs. Taxable Supply What is difference between zero rates and taxable supply MOORE Shekha Mufti 36#37Section-6: Time for Payment of Sales Tax to Treasury: ✓ At Import Stage when Payment of Custom Duty is Made; Filing of Sales Tax Returns - Local Supplies MOORE Shekha Mufti 37 40#38Section-7: Deduction of Input Tax from Output Tax Determination of Tax Liability ☐ A registered person can deduct input tax paid or payable during the tax period for the purpose of taxable supplies made, or to be made, by him from the output tax ☐ Input tax not deducted within relevant period, may be claimed / adjusted in the return for any of the six succeeding tax periods. ☐ Deduction of input tax from the output tax is admissible if registered person holds a tax invoice & goods declaration in his name and bearing his registration number. ☐ Goods purchased in auction, the buyers hold treasury challan in his name and bearing his registration number MOORE Shekha Mufti 38#39Input-Output Tax Adjustment Description Clothes Sales Value Output Tax 140,000 23,800 Description Purchase Value Chemicals 100,000 Electricity 5,000 Diesel 3,000 Overheads 3500 Value of Purchase & GST Paid 111,500 Payable to Government: MOORE Shekha Mufti Input Tax 17,000 1500 500 19,000 23,800-19,000 = 4,800#40Input-Output Tax Adjustment Value of supply on which GST to be imposed Amount of Output Tax @ 17% 140,500 Description Purchase Value Input Tax Input Adjustable Chemicals 100,000 17,000 Yes Yes Electricity 5,000 1,500 Diesel No 3,000 500 Overheads 3500 Value of Purchase & GST Paid 111,500 19,000 18,500 Payable to Government: 23,885-18,500 =5,385 MOORE Shekha Mufti 23,885#41Section 2(14): Input Tax In relation to a registered person means the tax levied on: ☐ Supply of goods to the person ☐ Goods imported and cleared under the Customs Act ☐ Provincial sales tax levied on services rendered or provided to the person ☐ Levied under ST Act as adapted in State of AJK Federal Excise Duty in sales tax mode on goods or services to the person. MOORE Shekha Mufti#42Section-8: Tax Credit Not Allowed a) Goods or services not meant for taxable supplies made or to be made by him; b) Goods or services, specified by the Federal Government through a notification, e.g. SRO 490 of 2004 dated June 2004 MOORE Shekha Mufti 422 42#43Section-8: Tax Credit Not Allowed (c) Goods specified liable to extra-tax. (ca) Goods or services in respect of which sales tax has not been deposited in Government treasury by respective supplier; (caa) CREST Discrepancy or input tax not verifiable in supply chain. (d) Fake invoices; (e) Registered person fails to furnish information required by the Board MOORE Shekha Mufti 43#44Section-8: Tax Credit Not Allowed (f) Goods and services not related to taxable supplies (g) Goods & services acquired for personal or non-business consumption (h) Goods used in / permanently attached to, immovable property such as building, paints, electrical and sanitary fittings, pipes, wire and cables Exclusion: Pre-fabricated buildings Such goods for sale or re-sale or for direct use in manufacture of taxable goods (I) Vehicles falling under Chapter 87, parts of vehicles, electrical & gas appliances, furniture, furnishings, office equipments excluding those acquired for sales or re-sale (j) Services in respect of which input tax adjustment is barred under the respective provincial sales tax law; MOORE Shekha Mufti 44#45Section-8: Tax Credit Not Allowed (k) Import or purchase of agricultural machinery or equipment subject to sales tax at the rate of 7% under Eighth Schedule to this Act; and (1) Such goods and services which, at the time of filing of return by the buyer, have not been declared by the supplier in his return or has not paid amount of tax due as indicated in his return. (m) Supplies / Services made to unregistered person for which sales invoices do not bear NIC or NTN of the buyer (n) Tier- retailer failed to integrate his outlets, the adjustable input tax upto 65% shall not be adjustable (o) Sales made to unregistered person exceeding Rs.10 million per month or Rs. 100 million in financial year. Exception to some class of persons. (p) Payment for purchase exceeding value of Rs.50,000 if not made through banking instrument in favour of the supplier from the business bank account of the buyer. MOORE Shekha Mufti 45#46Practical Questions: Tax Credit Not Allowed-Case Studies ✓ Building material used in factory construction Building material used in administrative block of office for construction Whether input tax allowed on goods not directly used in manufacturing ✓ Ratio of input tax disallowed if not having CNIC / NTN of registered person ✓ Vehicles and parts thereof - input tax adjustment, ✓ Whether input tax suffered on purchase of goods prior to exemption will be available for the purpose of input tax adjustment sold in July 2019. Whether input tax pertaining to services is claimable for registered person? MOORE Shekha Mufti 46#47Section-8: Tax Credit Not Allowed SRO 490(1)/2004, ☐ Vehicles ☐ Food, beverages, garments, fabrics, ☐ Consumption on entertainments Gifts and give-aways ☐ Supply of electricity and gas to residential colonies of registered person Building material ☐ Office eqipments & machines, furniture, structure, fixture & fittings excluding those directly used in taxable activity MOORE Shekha Mufti 47 47#48Section-8: Tax Credit Not Allowed SRO 490(1)/2004 Electrical & gas appliances, pipes, fittings excluding those directly used in taxable activity Wires, cables, ordinary electrical fittings & sanitary fittings excluding those directly used in taxable activity Crockery, cutlery, utensils, etc. excluding those directly used in taxable activity Stock in Trade: means goods purchased by a registered person in the course of business for sale of for further processing or manufacture SRO 1232(1)/90 Export of cigarettes from Pakistan by land route or to Afghanistan, Iran or China MOORE Shekha Mufti 48#49Section-8: Tax Credit Not Alloweda - 2. Tax Credit Not Allowed. If a registered person deals in taxable and non-taxable supplies, he can reclaim only such proportion of the input tax as is attributable to taxable supplies 3. Tax Credit Not Allowed. Only registered person can make adjustment of input tax in respect of taxable supplies made or to be made by him. Types of Input Tax: Used in Taxable Supplies ➤ Used in Exempt Supplies Used in both Taxable & Exempt Supplies [residual input tax] MOORE Shekha Mufti 49 49#50Section 8: Apportionment of Input Tax Registered person dealing in taxable and exempt supplies who has consumed input tax for both taxable and exempt goods need to apportion input tax as per following formula: Residual Input Tax Credit on Taxable Supplies = Value of Taxable Supplies Value of Taxable + Exempt Supplies * Residual Input Tax Input tax not available as per above formula is to be disclosed at S. No. 7 of sales tax return MOORE Shekha Mufti 50 50#51Section 8B: Extent / Ratio of Input Tax Adjustment Adjustment of Input Tax upto 90% of the output tax during tax period. Example: Input Tax: Output Tax: Adjustable Input Tax: Carry Forward Input Tax Differential Payable to Treasury: 1000 800 [90% of output tax, i.e. 720] 1000-720-280 280 80 MOORE Shekha Mufti 51 554#52Section 8B: Extent / Ratio of Input Tax Adjustment FBR may exclude certain categories of registered person from 90% input tax adjustment restrictions. Example in case of immunity from above: Input Tax: Output Tax: Adjustable Input Tax: Carry Forward Input Tax Differential Payable to Treasury: MOORE Shekha Mufti 1000 800 1000-800 200 Nil 52#53Section 8B: Extent / Ratio of Input Tax Adjustment Non-Application of 8B: Output Tax Exceeds Input Tax Output Tax: Input Tax: 1000 800 1000-800 Adjustable Input Tax: Differential Payable to Treasury 200 MOORE Shekha Mufti 53#54Extent / Ratio of Input Tax Allowed- Filing of Return Exclusion from 90% Input Tax Restrictions - SRO 1190 of 2019, Dated 02 October 2019 1. Persons registered in electrical energy sector Fertilizers manufacturers Persons making zero rates supplies-exports exceeds 50% of total supplies 2. OMCS & petroleum refineries 3. 4. 5. 6. 7. 8. 9 Distributors Gas distribution companies Telecom services Pak Steel Mills, Karachi Registered persons other than manufacturer making supplies of Third Schedule goods on which sales tax has been paid by importer or manufacturer on retail price provided value of all taxable supplies exceeds 80% of total supplies in a tax period MOORE Shekha Mufti 54#55Extent / Ratio of Input Tax Allowed- Filing of Return Exclusion from 90% Input Tax Restrictions - SRO 1190 of 2019, Dated 02 October 2019 10 Commercial importers- imports subject to 3% value addition tax exceeds 50% of imports 11. CNG dealers provided the value of natural gas on which sales tax is charged on the basis of value notified by Federal Board of Revenue exceeds 50% of value of all taxable purchases in a tax period. 12. Petroleum dealers of licensed oil marketing companies. 13. Automobile manufacturing companies which are listed in PSE MOORE Shekha Mufti 55#56Extent / Ratio of Input Tax Allowed- Filing of Return Exclusion from 95% Input Tax Restrictions - SRO 1190 of 2019, Dated 02 October 2019 1. All Tier-1 Retailers who have integrated all their POSS with the Board 2. Retailers importing in bulk and operating chain of stores. 3. Wholesalers of yarn MOORE Shekha Mufti 56#57Case Studies Extent / Ratio of Input Tax Allowed- Filing of Return 100% adjustment of input tax, not falling above provision of law- Consequences MOORE Shekha Mufti 57 562#58PROVINCIAL SERVICE SALES TAX LEGISLATION MOORE Shekha Mufti 58#59Service ST Laws in Pakistan- History Excise duty was imposed probably in 1970 on certain services under Central Excise Act, 1944 Such excisable services were transposed to Federal Excise Duty Act, 2005 which remained effective till July, 2011 [For Sindh] Meanwhile, Provincial Sales Tax on Services were introduced through Ordinances, 2000 MOORE Shekha Mufti 4 59#60Service ST Laws in Pakistan- History Post 18th Constitutional Amendment era; Sindh ST on Service Act, 2011, Rules & Notifications, enforcing agency SRB effective from 1 July 2011 Punjab ST on Services Act, 2012, Rules & Notifications, implementing agency PRA, w.e.f 1 July 2012 KP Finance Act, 2013, Rules & Notifications, Implemented by KPRA w.e.f 1 July 2013 Baluchistan ST on Services Act, 2015 Rules and Notification, enforced through BRA, w.e.f 1 July 2015 Islamabad Capital Territory (Tax on Services) Ordinance, 2001 Implemented through. FBR MOORE Shekha Mufti#61ST Laws in Pakistan- Overview VAT concept based Consumption Tax ☐ Sales tax on Goods, Negative list approach i-e all goods are taxable unless expressly provided as exempt, destination principle followed in respect of international trade i-e exports zero rated, imports taxable, ☐ Whereas w.r.t services, Positive list approach, Taxable services notified, Negative list awaited!, hybrid approach w.r.t destination vs origin principle due to complex nature of service transactions MOORE Shekha Mufti 19 61#62ST Laws in Pakistan- Overview Self assessment scheme backed by audit Administration by semi autonomous organizations which are partly entrusted the policy & legislation role as well Automation! On way MOORE Shekha Mufti 62 60#63PROVINCIAL SERVICE SALES TAX LEGISLATION The Sindh Sales Tax on Services Act, 2011 The Punjab Sales Tax on Services Act, 2012 KPK Sales Tax on Services Act, 2013. The Baluchistan Sales Tax on Services Act, 2015 The Islamabad Capital Territory (Tax on Services) Ordinance, 2001 MOORE Shekha Mufti 63 83#64THE SINDH SALES TAX ON SERVICES ACT, 2011 PREAMBLE An Act for levy of tax on services provided, rendered, initiated, received or consumed in Province of Sindh MOORE Shekha Mufti 64 49#65Section 3(1)- Scope of Services Services listed in the Second Schedule: Provided by Registered Person from his registered office or place of business in Sindh to another Person In the course of Economic Activity including in the commencement or termination of the activity MOORE Shekha Mufti 65 55#66Taxable Services-Examples Section 3(1) Service Provider Service Recipient Taxable Services, liable to SSTSA Registered in Sindh Unregistered in Sindh Yes Unregistered in Sindh Registered in Sindh Yes Registered in Sindh Outside Sindh Yes MOORE Shekha Mufti 66 99#67Section 3(2)- Scope of Services Services listed in the Second Schedule: Provided to Resident Person by Non-Resident Person ☐ In the course of Economic Activity Examples: Franchise Services acquired by Resident at Sindh from Non-Resident Taxable Services such as Equipment Testing provided at UAE by Non-Resident for Resident who has sent such items for this purpose. Whether this service falls in the ambit of above provision to be treated as taxable service. MOORE Shekha Mufti 67 57#68Taxable Services-Examples Section 3(2) Service Provider Service Recipient Taxable Services, liable to SSTSA Unregistered in Sindh Unregistered in Sindh Yes Non Resident Resident Non Resident MOORE Shekha Mufti Yes Non Resident No 68#69Section 3(3)- Scope of Services Person having registered office or place of business in Sindh and another outside Sindh- Both will be treated as separate office Example Company "A" having a registered office or a place of business in Sindh and outside the Sindh [Punjab/KPK] receiving the services would be treated as separate legal person [entity]. Chargeability according to Jurisdiction MOORE Shekha Mufti 69 69#70Scope of Tax Scope of Tax & Allied Matters- Section 8(1) Tax charged, levied and collected on value of taxable services at the rate specified in Second Schedule. MOORE Shekha Mufti 70 70#71Scope of Tax Scope of Tax & Allied Matters- Section 8(2) Board may declare rate of sales tax on higher or lower rate for any taxable service provided by a registered person or class of registered person S. Description No. 1 Fixed Reduced Rate of Sales Tax on 2 Various Services subject to conditions SRO/STGO / Circular SRB-3-4/8/2013, dated 01 July 2013; SRB-3-4/26/2013, dated 28 December 2016; Exemption for Sales Tax on Various Services SRB-3-4/7/2013, dated 18 June 2013 subject to conditions MOORE Shekha Mufti 71#72Scope of Services Economic Activity- Section 4(1&2) a. Any activity carried on by a person for provision of services for other person b. An activity carried on in the form of a business, including a profession, calling, trade or undertaking of any kind, whether or not the activity is undertaken for profit; c. Any activity or supply of moveable or immovable property by way of lease, license or similar arrangement; and d. A one-off adventure or concern in the nature of a trade. e. Anything done or undertaken during the commencement or termination of an economic activity is part of the economic activity. MOORE Shekha Mufti 72#73Scope of Services Economic Activity- Section 4(3) An economic activity does not include: a. The activities of an employee providing services in that capacity to an employer; or b. A private recreational pursuit or hobby of an individual.' MOORE Shekha Mufti 73#74Scope of Services Provision of Services Over a Period of Time- Section 7 Service provided over a period of time and payment made periodically, separate service will be considered with respect to each separate part of consideration relates Examples: ✓ Plant Machinery given on rent for two years and payment is made twice in a year, rented goods for each six months period constitutes a separate service. ✓ Providing credit card and receipt of charges on quarterly basis by bank, payment of service for each quarter is separate service. ✓ Insurance policy over period of 05 years and receipt of premium on annual basis, each premium relates to separate service. MOORE Shekha Mufti 74 I#75Liability for Tax Payment / Withholding - Section-9(1)(2)(3) of SSTSA; Service Provider Taxable services rendered in / originated from Sindh as per sub-section 1 of Section 3 Liability for Payment Sales Tax *Registered Person providing the service Taxable services rendered by non-resident to resident person as per sub-section 2 of Section 3 Where a registered service recipient receiving taxable services from other registered service provider is in knowledge or has reasonable grounds to suspects that some or all of the tax payable in respect of any taxable service remains unpaid. *Person receiving the service in Sindh Both service provider and recipient of such unpaid tax MOORE Shekha Mufti *The Board may specify by notification that responsibility for payment of sales tax rests with service provider or service recipient or any other person 75#76Liability for Tax Payment / Withholding- Section-9(1)(2)(3) of SSTSA; Service Provider Service Recipient Liability to Pay Sales Tax rests with Registered in Sindh Unregistered in Sindh. Registered Service Provider Non Resident Resident in Sindh Resident Recipient of Service Registered in Sindh- Tax not Registered in Sindh-Tax not paid to service provider paid MOORE Shekha Mufti Both Service Provider & Recipient 76#77Time, Manner & Mode of Sales Tax Payment Time of Service-Section 17(2) Service will be considered to have been provided at the earlier of the following 3 events: ☐ service is provided to the recipient; ☐ invoice is issued to issued to the recipient; or ☐ consideration for the service is received * The tax in respect of taxable service is payable with the return. The principle of 'Time of Service' will also apply to an unregistered recipient of taxable service. who acquires the same from a registered person MOORE Shekha Mufti 77#78Time, Manner & Mode of Sales Tax Payment Section 17(3) The Board may specify by a notification that the tax in respect of any or class of service shall be charged, collected and paid in any other way, mode, manner or time as is specified in such notification Section 17(4) Deposit in designated bank, or Any other mod and manner as specified by Board / Authority MOORE Shekha Mufti 78#79Adjustments / Deduction of Input Tax from Output Tax- Determination of Tax Liability- Section 15 ☐ A registered person can deduct input tax paid or payable during the tax period for the purpose of taxable services made, or to be made, by him from the output tax and to make such other adjustments ☐ Input tax not deducted within relevant period, may be claimed / adjusted in the return for any of the six succeeding tax periods. ☐ Deduction of input tax from the output tax is admissible if registered person holds a tax invoice & goods declaration in his name and bearing his registration number. MOORE Shekha Mufti 79#80Tax Credit Not Allowed-Section 15A A registered person shall not claim input tax in relation to goods and services as provided in Table below: S. No. a b C d LUI E Description of Goods & Services Goods or services used or to be used other than for taxable services rendered or provided by him Goods or services in respect of which sales tax has not been deposited in Government treasury by the respective supplier or service provider Goods and services received against false, fake, forged, flying, untrue, unreal or unrelated invoices or against purchases from the persons black listed or suspended by the Authority or by FBR or by any other Provincial authority Further tax, extra tax and value addition tax levied under the Sales Tax Act, 1990, and the rules or notifications issued thereunder; Capital goods and fixed assets (plant, machinery, equipment and others) not exclusively useable or used in providing taxable services MOORE Shekha Mufti 80 50#81Tax Credit Not Allowed-Section 15A A registered person shall not claim input tax in relation to goods and services as provided in Table below: S. No. Description of Goods & Services Following goods or services excluding ones directly used and consumed in economic activity of registered person paying not lesser than @ 13%: ✓ vehicles falling in Chapter 87 of the First Schedule to the Customs Act, 1969 (IV of 1969), parts of such vehicles, ✓ food, beverage, garments, fabrics, etcetera and consumption on entertainments, meetings, or seminars ✓ gift, and give aways supply of electricity, telecommunication and gas to residential colonies. ✓ crockery, cutlery, utensils, etc. ✓ building material, ✓ Wires, cables, sanitary fittings, ordinary electrical fittings, electrical fans, bulbs, tubes ✓ Office equipment and machines MOORE Shekha Mufti 81#82Tax Credit Not Allowed-Section 15A S. No. g H Description of Goods & Services utility bills not in the name of registered person unless evidence of consumption is produced in the matter of such claims. Goods or services received by registered person during a period exceeding six months prior to the date of commencement of the provision of taxable services goods and services used or consumed in a service liable to a rate of tax lesser than standard rate of the charges or to a specific rate of tax not based on value j Jj K goods and services liable to a tax rate lesser than thirteen per cent of the charges or to a specific rate of tax not based on value when used for providing or rendering any service Goods and services at specific rate or fixed rate or such other rate not based on value or rate lesser than 13% Sales tax paid on telecommunication services in excess of 19.50% and amount of excess 13% against goods or services MOORE Shekha Mufti 82 22#83Tax Credit Not Allowed-Rule 22A of Sales Tax on Services Rules, 2011 In addition to list provided at 15A, registered person shall not claim input tax in relation to goods and services as provided in Table below: S. No. Description of Goods & Services 1 Sales tax claimed on goods and services where a registered person has not made payment within 180 days of the tax invoice through crossed cheque / draft order/ any other bank instrument 2 3 carry forward of the input tax adjustment relating to the period prior to the commencement of the Act Sales tax claimed on goods or services acquired for personal and nun-business use MOORE Shekha Mufti 83 83#84Extent / Ratio of Input Tax Allowed - Filing of Return, Section 15B Adjustment of Input Tax equal to 12 monthly installments will be allowed on purchase of fixed assets Question: MOORE Shekha Mufti 84 ळ#85Value of Taxable Service- SSTSA Value of taxable service is gross amount of consideration in money inclusive of all Federal & Provincial duties, taxes, levies and charges receives from service. recipient excluding the amount of sales tax under the Act. Description Cost +) Overheads +) Local tax on services PKR 100,000 25,000 10,000 5,000 3,000 (3000) Value of Service on which VAT to be imposed 140,000 +) Profit Margin +) Expenses paid on behalf of customers - ) Discount MOORE Shekha Mufti#86Value of Taxable Service- SSTSA Description A service is made in the following case: Between related persons, and Consideration for supply for no or reduced consideration less than the price as offered to other than associated persons Consideration in kind or partly in kind and partly in money Service provided for no consideration or for lesser than the price In case of trade discounts, invoice must show discounted price and discount to be in conformity with customary business practice Special nature of transaction where difficult to ascertain value or reason to believe that value of service not correctly declared at invoice The value of service in case of advance receipt from customers Where service is provided at higher value as fixed by Board MOORE Shekha Mufti Value of Service Price at which service is provided to other persons Open market price Open market price Discounted price Open market price Amount received to be worked back Value at which service provided until otherwise directed by Board#87Jurisdictional Issues Origination Vs Destination Principle. Service Sales tax on activities at Ports, airports & Railway stations Service Sales Tax on Federal Authorities Service Sales Tax on Cross border/international transactions ☐ Classification issues- Goods Vs Service ■ Toll Manufacturing Services ■ Software & Other digital products Service by restaurants Distributor of goods Renting of Assets MOORE Shekha Mufti 87 40#88Jurisdictional Issues Origination Vs Destination Principle ☐ All the provincial laws envisage both the origination as well as destination principle Overlapping jurisdiction in case of interprovincial transactions- Double taxation Dispute landed before High Court in case of Advertisement services by electronic media Court referred the matter to Ministry of interprovincial Co-ordination for resolution holding that double taxation is not the intent of legislature Issue stands resolved in case of transportation through oil tankers MOORE Shekha Mufti 88#89Jurisdictional Issues Sales Tax on Activities at Ports, Airports etc Article 53 of 4th Schedule to the Constitution- power to levy terminal taxes on goods or passengers carried by railway, sea or air; taxes on their fares and freights vests in Federal Government SHC held that the tariff heading for levying service sales tax on shipping agents, stevedores and freight forwarders under the SSTA, 2011 in present form overlap with the taxing power of Federal Government- Hence struck down □ Operation of said judgment was suspended by the SCP MOORE Shekha Mufti 99 89#90Jurisdictional Issues Sales Tax on Federal Authorities In case of Civil Aviation Authority, Supreme Court of Pakistan held that Federal Authorities created to perform regulatory role or legislative function cannot be subjected to service sales tax under the SSTSA, 2011 ☐ The issue of taxability of transportation through Pakistan Railway is sub judice before Lahore High Court MOORE Shekha Mufti 90 90#91Jurisdictional Issues Sales Tax on Cross Border Transactions Whether province may promulgate a law to tax transactions which involve economic activity wholly or partially beyond its territorial jurisdiction is grey area ☐ It is argued that only Federal Government can legislate to tax such cross border transactions Issue is sub judice before the SHC in case of foreign exchange companies on issue of commission earned on remittances from abroad MOORE Shekha Mufti = 91#92Classification Issues Toll Manufacturing Activity ☐ Overlapping jurisdiction claim by FBR as well as Provincial Authorities treating the underlying supply as of "goods" & "services" respectively Based on judgment by SCP FBR issued a clarification. ☐ Reportedly, it has been agreed at National Tax Council that jurisdiction to tax toll manufacturing activity vests with FBR MOORE Shekha Mufti 92#93Classification Issues Distributor of Goods SRB issued compulsory registration orders of certain distributors of goods even though such distributors were paying federal sales tax on their entire revenue SRB is of the view that arrangement between the distributors and the manufacturers involve rendering of "Supply chain management services". SRB view has been upheld by the SHC ☐ Issue is expected to land in Supreme Court MOORE Shekha Mufti 93 33#94Classification Issues Services by Restaurants □ Overlapping jurisdiction claim by FBR and provincial authorities treating the supplies as "goods" and "services" respectively Issue is sub judice before courts in certain cases ☐ Reportedly, it has been resolved at National Tax Council that the jurisdiction to levy sales tax on supplies of restaurants vest in provincial authorities MOORE Shekha Mufti 94#95Classification Issues Software & Other digital products ☐ Certain products of IT industry are difficult to classify as "good" or "service" ☐ Disputes over jurisdiction to tax such transactions e-g renewable licensing of a standard software application for fix period against subscription!!!! ☐ Sale of contents of "drama" by a production house ☐ Distinguishing factors between "goods" & "services" MOORE Shekha Mufti 95#96Classification Issues Renting of Assets whether renting activity/ transfer of right to use any assets involves and element of service rendering? Issue is sub judice before Courts in case renting of immovable property It is argued the mere renting / transfer of right to use lacks any element of service MOORE Shekha Mufti 96#97Section 9: Post Supply Events Credit-Debit Note & Adjustment of VAT Situations for Issuance of Credit and Debit Notes ✓ Cancellation of Supply Return of Supply ✓ Change in Nature of Supply. Change in Value of Supply ✓ Change in Rate of Sales Tax ✓ Some Such Event MOORE Shekha Mufti 97 40#98Section 9: Post Supply Events Credit-Debit Note & Adjustment of VAT Description Tax invoice or tax return may be modified in the following cases: Action Required Cancellation or Return of supply of goods in the buyer shall issue Debit Note and must make whole or in part as supplied by registered adjustment in tax return. The supplier will issue a person to registered buyer corresponding Credit Note and adjust his tax return. Cancellation or Return of supply of goods in the supplier shall issue Credit Note and must whole or in part as supplied by registered make adjustment in tax return. person to unregistered person MOORE Shekha Mufti#99Section 9: Post Supply Events Credit-Debit Note & Adjustment of VAT Description Tax invoice or tax return may be modified in the following cases: Material change in nature of supply which results change in amount of tax; Action Required the supplier shall issue Debit Note and must Change in amount of Value of Supply make adjustment in tax return. The buyer will including offer of additional discount Change in amount of Tax If amount of output tax mentioned in the invoice increases issue a corresponding Credit Note and adjust his tax at sales tax return. MOORE Shekha Mufti#100Section 9: Post Supply Events Credit-Debit Note & Adjustment of VAT Description Tax invoice or tax return may be modified in the following cases: Material change in nature of supply which results change in amount of tax; Action Required the supplier shall issue Credit Note and must make adjustment in tax return. The buyer will Change in amount of Value of Supply issue a corresponding Debit Note and adjust his including offer of additional discount tax return. Change in amount of Tax If amount of output tax mentioned in the invoice decreases, MOORE Shekha Mufti#101Debit-Credit Note: Case Studies In case of rate of sales tax decrease from 17% to 5%, - whether debit – credit note may be issued by supplier to make adjustment. In case of taxable goods supplied to customers are subsequently exempted, whether debit - credit note. may be issued by supplier to make corresponding adjustment. What are the consequences for not issuing or providing debit/credit note once required by tax authority MOORE Shekha Mufti 101#102Debit-Credit Note: Case Studies Whether credit and debit note be issued if post invoice. discount is given What remedy available in case time of issuance of DN / CN exceeds 6 months. How to declare debit/credit note at return? ANNEXURE-I MOORE Shekha Mufti 102#103Section-49: Sale of Taxable Activity or Transfer of Ownership by Registered Person Event Status of Buyer Application of Tax Liability Sales Tax Termination of Taxable Activity or Part thereof Unregistered Person Yes Supplier Sales or Transfer of Ownership Unregistered Person Yes Supplier Sales or Transfer of Ownership as on Going Registered Person Zero Rate Supply Registered Buyer Concern MOORE Shekha Mufti 103#104Section 59: Tax Paid on Stock before Registration Event Person having taxable invoice required to be registered under ST Act Person having Goods Declaration required to be registered under ST Act Condition for Input Tax Invoice issued within 30 days of filing registration application Verifiable unsold stock on date of registration or on date of application Having GD within 90 days of filing registration. application Verifiable unsold stock on date of registration or on date of application MOORE Shekha Mufti 104#105Types of Sales Tax Audits under Federal Sales Tax Act, 1990 Routine/ Desk Audit of Sales Tax Records - Section 25 of STA Selection of Cases for Audit- 72B of STA read with Chapter VIA of Sales Tax Rules, 2006 Investigation/Enquiry under Sections 38, 38A, 38B & 40B Pre or Post Refund Audit - Section 10 of STA- Chapter-III of Sales Tax Rules, 2006 Audit by Special Audit Panels under Section 32A of STA read with Chapter VI of Sales Tax Rules, 2006 Investigation by Directorate General of Intelligence and Investigation-IR [refer SRO 1301(I)/2018, dated 29 October 2018] MOORE Shekha Mufti 105#106Types of Sales Tax Audits under Federal Sales Tax Act, 1990 DTRE Audit of Sales Tax Records Deregistration Audit- Section 21 of STA read with Rule 11 of Sales Tax Rules, 2006 MOORE Shekha Mufti 106#107Investigations / Inquiry - Sections 38A, 38B & 40B Section Jurisdiction of authority Nature of record to be produced / Work to be Done Event for production of record Compliance by 38A Commissioner Any Person Information or Statement 38B Assistant Any Person Documents or Relevance to Audit, Inquiry Commissioner Records or Investigation Inquiry or Investigation in Case of Tax Fraud Formulation of Policy or FBR Broadening of Tax 40B Officer of Inland Revenue be Registered Office Not Required Monitoring of Production, Sales & Stock Posted upon Board's Approval Premise MOORE Shekha Mufti Question: Notice issued by Officer below Commissioner under Section 38A? Notice to produce record in general under Section 38B. Legality?.. 107#108Section 8A: Joint & Several Liability of Registered Persons Upon receipt of taxable supply by registered person from another registered person, it is in knowledge or has reasonable grounds that some or all tax payable would go unpaid, both persons will be jointly and severally liable for payment of such unpaid tax. Burden to prove lies on department MOORE Shekha Mufti 108