Intellectual Property - Karachi Tax Bar Association

January 6, 2018 | Author: Anonymous | Category: Social Science, Law
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The Sindh Sales Tax on Services Act 2011 an overview By Muhammad Junaid Ghaffar (Advocate) Merchant Law Associates (Formerly Navin Merchant & Associates) (Customs, Excise & Sales Tax Consultants, Patent, Trade Mark, Design & Copy Right Attorneys)

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Muhammad Junaid Ghaffar Advocate High Court

Sales Tax on Services viz a viz Constitution Prior to the 18th Amendment the Province could make laws on subjects listed in the Concurrent Legislative List in 4th Schedule {Article 70 (4)} Sales tax on import and sale of goods was part of Federal Legislative List. Since Services were not listed in Federal Legislative List, the Provinces in the year 2000 made legislation on the subject.

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This levy by Provinces was even challenged in the Lahore and Sindh High Courts but was upheld by both as being properly and validly legislated. Muhammad Junaid Ghaffar Advocate High Court

Continued 

 

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However, after 18th amendment to the Constitution the Provinces now have the exclusive right to make laws with respect to any matter not covered by Federal Legislative List. The Concurrent Legislative is now omitted. Entry 49 of the Federal Legislative List has also been amended by exclusion of the words “Sales Tax on Services” enabling the Provinces to exclusively legislate on the subject. Muhammad Junaid Ghaffar Advocate High Court

Why Province of Sindh has taken a stand on collection of Tax by itself 





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All other Provinces except Sindh were agreeable to allow FBR to collect Sales Tax on Services and distribute the revenue; Sindh pleaded its case on the premise, that collection from Sindh was much higher than what it was being Reimbursed as the same was census or population based; As per Special Adviser to CM, under the NFC award 17 Billion were given last year, whereas mow it is expected that 25 Billion would be collected Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 (Preliminary) Sections 1 to 7









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Definition of various nature are contained n Section 2. Important ones are; Majority of the same are Para Materia to the definitions contained in Section 2 of the Sales Tax Act 1990 Further most of the definitions are itself contained in the later part of the Act in different sections We will dilate upon new clauses and definitions Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued  



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Clause 28 of section 2 “place of Business in Sindh” means that a person; owns, rents, shares or in any other manner occupies a space in Sindh from where it carries on an economic activity; or carries on an economic activity through any other person such as an agent, associate, franchisee, branch, office, or otherwise in Sindh but not including a liaison office. Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 continued



Clause 33 “resident” an individual shall be a resident for a financial year, if the individual-



place of business; or





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has his permanent address, as listed in the individual’s notational identity card, in Sindh; Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued (ii)an association of persons shall be a resident for a financial year if;  its registered office is in Sindh; or  it has a place of business in Sindh; or  the control or management of the affairs of the association of persons is situated wholly or almost wholly in Sindh at any time during the relevant financial years;

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Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued (iii) A company shall be a resident for a financial year if;  Its registered office is in Sindh; or  It has a place of business in Sindh; or  The control or management of the affairs of the company is situated wholly or almost wholly in Sindh at any time during the relevant financial years;

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Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued  





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Clause 35 “Service” or “Services includes, but is not limited to, the activities listed in column (2) of the first schedule of this Act read with Chapter 98 of the Pakistan Customs Tariff; Clause 36 “Schedule”.. These have been appended to the Act as First and Second Schedule where the services are listed. First Schedule covers all sorts of services as defined in clause 35 read with Chapter 98 of the Pakistan Customs Tariff Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued 

  a) b)

11

Second Schedule covers those services which have been for the time being brought under the “taxable Services” as per section 3 of the Act Section 3 “Taxable Service” A taxable service is a service listed in the second Schedule to this Act which is provided; by a registered person from his registered office or place of business in Sindh; in the course of an economic activity, including in the commencement or termination of the activity. Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued 

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Explanation: this sub-section deals with services provided by registered persons, regardless of whether those services are provided to resident persons or non-resident persons.

(2) A service that is not provided by a registered person shall be treated as a taxable service if the service is listed in the Second Schedule to this Act and:  (a) is provided to a resident person  (b) by a non-resident person in the course of an economic activity, including in the commencement or termination of the activity. Muhammad Junaid Ghaffar Advocate High Court

Chapter I Continued  



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Explanation: This sub-section deals with services provided by non-resident persons to resident persons .. (3) For the purposes of sub-section (2), where a person has a registered office or· place of business in Sindh and another outside Sindh, the registered office or place of business in Sindh and that outside Sindh shall be treated as separate legal persons. (4) The Board may, with the approval of the Government and by notification in the official Gazette, prescribe rules for determining the conditions under which a particular service or class of services will be considered to have been provided by a person from his registered office or place of business in Sindh. Muhammad Junaid Ghaffar Advocate High Court

Chapter I continued Section 4 “Economic Activity” means (1)An economic activity means any activity carried on continuously or regularly by a person that involves or is intended to involve the provision of services to another person and includes(a) 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; 

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Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued (b) the supply of moveable property by way of lease, license or similar arrangement; and (c) a one-off adventure or concern in the nature of a trade. (2) Anything done or undertaken during the commencement or termination of an economic activity is part of the economic activity. (3) An economic activity does not include(a) the activities of an employee providing services in that capacity to an employer;

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Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued (b) a private recreational pursuit or hobby of an individual; (c) an activity of a person other than an individual, which is essentially carried on as a private recreational pursuit or hobby of a member, owner, or associate of the person; or (d) an activity carried on without a reasonable expectation of profit by an individual or an association of persons, all of the members of which are individuals.

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Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued Section 5 “Value of Taxable Service” (1) The value of a taxable service is: (a)the consideration in Money including all Federal and provincial duties and taxes, if any, which the person providing a service receives from the recipient of the service but excluding the amount of sales tax. In case the consideration for a services is in kind or is partly in kind and partly in money, the value of the service shall mean the open market price of the service as determined under section 6 excluding the amount of sales tax under this Act; and 

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Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued (ii)In case the person provides the service and the recipient of the service are associated persons and the service is supplied for no consideration or for a consideration which is lower than the price at which the person provides the service to other persons who are not associated persons, the value of the service shall mean the price at which the service is provided to such other persons who are not associated persons excluding the amount of sales tax;

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Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued (iii)in case a person provides a service for no consideration or for a consideration is lower than the price at which such a service is provided by other persons, the value of the service shall mean the open market price for such a service; (b)in case of trade discounts, the discounted price excluding the amount of sales tax under this Act, provided the tax invoice shows the discounted price and the related tax and the discount allowed is in conformity with customary business practice;

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Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued © in case there is reason to believe that the value of a service has not been correctly declared in the invoice or any special nature of transaction it is difficult to ascertain the value of a service, the open market price, as determined under section6; (d)notwithstanding any of the above, where the Board deems it necessary it may, by notification in the official Gazette, fix the value of any service or class of services and for that purpose fix different values for different classes or description of the same or similar types of services;

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Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued 

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provided that where the value at which the service is provided is higher than the value fixed by the Board, the value of the service shall, unless otherwise directed by the Board, be the value at which the service is provided.

Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued Section 6 “Open Market Price” (1) The open market price of a service is: (a) the price the service would fetch in an open market transaction freely entered into between persons who are not associated persons; or (b) if it is not possible to determine an amount under paragraph (a), the price a similar service would fetch in an open market transaction freely made between persons who are not associated persons, adjusted to take account of the differences between the similar service and the actual service,

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Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued 



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determined on the basis of the market conditions prevailing at the time and place at which the service is provided. (2) If the open market price of a service cannot be determined under subsection (1), it may be determined using any method approved by the Board for calculating an objective approximation of the price the service would fetch in an open market transaction freely made between persons who are not associates. Muhammad Junaid Ghaffar Advocate High Court

Chapter 1 Continued 

Section 7 “Service over a Period of Time”

(1)Where a service is provided over a period of time and payment for the same is made on a periodic basis, the service shall be treated as comprising two or more separate and distinct services each corresponding to the part of the service to which each separate part of the consideration relates (2) This section does not apply to services for which payment is made on an installment basis.

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Muhammad Junaid Ghaffar Advocate High Court

Chapter II Scope of Tax (Sections 8 to 15) 

Section 8 “Scope of Tax”

(1)Subject to the provisions of this Act, there shall be charged. levied and collected a tax known as sales tax on the value of a taxable service at the rate specified in the Schedule in which the taxable services is listed. (2)The Government may, subject to such conditions and restrictions as it may impose, by notification in the official Gazette, declare that in respect of any taxable service provided by a registered person or a class of registered persons, the tax shall be charged, levied and collected at such higher or lower rate or rates as may be specified in the said notification for any given tax period.

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Muhammad Junaid Ghaffar Advocate High Court

Chapter II continued Section 9 “ Person Liable to Pay Tax” (1)Where a service is taxable by virtue- of sub

section (1) of section 3, the liability to pay the tax shall be on the registered person providing the service.

(2)Where a service is taxable by virtue of subsection (2) of section 3, the liability to pay the tax shall be on the person receiving the service.

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Muhammad Junaid Ghaffar Advocate High Court

Chapter II continued (3)Notwithstanding anything contained in sub-sections (1) and (2), the Government may, by a notification in the official Gazette, specify the services or class of services in respect of which the liability to pay tax shall be on the person providing the taxable service, or the person receiving the taxable service or any other person. (4)Nothing contained in sub-sections (1) and (2) shall prevent the collection of tax from a different person if that person is made separately or jointly or severally liable for this tax under section 18.

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Muhammad Junaid Ghaffar Advocate High Court

Chapter II continued 

Section 10 “Exemptions”…..

(1)Notwithstanding the provisions of section 8, the Board, may, with the approval of the Government and subject to such conditions and restrictions as it may impose, by notification in the official Gazette: (a)exempt any taxable service from the whole or any part of the tax chargeable under this Act; (b)exempt any taxable service provided by a specific person or a class of Persons from the whole or any part of the tax chargeable under this Act;

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Muhammad Junaid Ghaffar Advocate High Court

Chapter II continued ©exempt any recipient of services or class of such recipient, including International organizations and institutions, from the payment of the whole or any part of the tax payable under this Act; (d)exempt any person or class of persons from the whole or any part of the tax chargeable under this Act. (2)The exemption under sub-section (1) may be allowed from any previous date specified in the notification issued under sub-section (1)

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Muhammad Junaid Ghaffar Advocate High Court

Chapter II continued 

Section 13 “Special Procedure”. Rules have been issued vide No Legal/231/2011 dated 30.6.2011



Section 14 “Delegation of power”



(1)Notwithstanding anything contained in this Act, the Government may, by notification in the official Gazette, authorize the Federal Board of Revenue or any other Federal, provincial or other agency, department, organization or person to administer, collect and enforce the levy of sales tax on such taxable services as it may notify and in such mode and manner and for such period as it may prescribe and subject to such restrictions and conditions as it may impose.

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Muhammad Junaid Ghaffar Advocate High Court

Chapter II continued (2)Notwithstanding anything contained in this Act, where the Government notifies any taxable services under sub-section (1) above, for the period specified therein, except for the provisions of Chapters I and II and sections 72, 7 4 and 78, the remaining provisions of this Act shall not be applicable to such taxable services. (3)At the end of the period specified in sub-Section (1) above, the tax on taxable services notified under sub-section (1) shall be administered, collected and enforced by the Board in the same mode and manner as all  other taxable services and all provisions of this Act shall be applicable to them.

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Muhammad Junaid Ghaffar Advocate High Court

Chapter II continued 



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Section 15 “Adjustments” Read with Chapter V of Rules 21 to 23 of Notification dated 30.6.2011 Although no Input Tax has been defined or used in this section, but primarily this section has been created to keep some space open for this. The section has been made dependent on Rules and the Board has been made competent to allow adjustments, deductions including refunds. Muhammad Junaid Ghaffar Advocate High Court

Chapter II continued The section has been defined as; 

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The Board may, subject to such conditions and restrictions as it may prescribe and with the approval of the Government, allow registered persons to claim adjustments or deductions, including refunds arising as a result thereof, in respect of the sale tax paid on or in respect of any taxable services or class of taxable services provided by them. Muhammad Junaid Ghaffar Advocate High Court

Chapter V of Rules (Adjustment of Input Tax and Tax paid) 21 Application: The provision of this chapter shall apply to the registered persons who provide or render taxable and exempt supplies simultaneously or claim adjustment or deduction in respect of tax paid under the provision of section 15 of the Act. 22 Determination of Input Tax: (1) Input tax paid on the inputs relating wholly to the taxable services shall be admissible under the law and the input tax paid on inputs relating wholly to exempt services shall not be admissible. The amount of input tax incurred on both exempt and taxable services shall be apportioned according to the following formula namely:

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Muhammad Junaid Ghaffar Advocate High Court

Chapter V of Rules Continued (2) Monthly adjustment of input tax claim based on sub rule (1) of rule 22 by a registered person shall on the basis of taxable and exempt services and proportionately basis on services provider in Sindh and elsewhere; will be subject to reconciliation and audit (where required) during the year. The registered person claiming input Tax of goods used, consumed or utilized in providing of services at more than 20% of the output shall file scanned attachments of the evidences with all the necessary evidence based on which claim is made.  (3) Any inadmissible Input tax adjustment claimed shall be punishable under the respective provisions of law.

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Muhammad Junaid Ghaffar Advocate High Court

Chapter V of Rules Continued 

23 Credit and Debit of tax claimed or paid: Where a registered person has assigned a tax invoice in respect of services provided or rendered by him and as a result of any event specified in section 15 of the Act, the amount shown in the tax invoice or return needs to be modified, the service provider and provide both will issue debt and credit notes with details to be mentioned in such debit or credit note and adjust the amount accordingly provided that the corresponding debit or credit note is issued within 90 days extendable on request for 30 more days Provided further that in the case of unregistered providee of the service, the adjustment can only be made against the credit note issued by the provider of the service.

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Muhammad Junaid Ghaffar Advocate High Court

Chapter III (Sections 16 to 23) Section 16 “Collection of Excess Tax” corresponds almost exactly to section 3B of the Sales Tax Act 1990 and says … (1)Any person who has collected or collects any tax or 

charge, whether under misapprehension of any provision of this Act or otherwise, which was not payable as tax or charge or which is in excess of the tax or charge actually payable .and the incidence of which has been passed on to the person to whom the service is provided, shall pay the amount of tax or charge so collected to the Government.

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Muhammad Junaid Ghaffar Advocate High Court

Chapter III Continued (2)Any amount payable to the Government under subsection (1) shall be deemed to be an arrear of tax or charge payable under this Act and shall be recoverable accordingly. (3)The burden of proof. that the incidence of tax or charge referred to in sub- section (1) has been or has not been passed to the person to whom the service is provided shall be on the person collecting the tax or charge.

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Muhammad Junaid Ghaffar Advocate High Court

Chapter III Continued Section 17 “Time and Manner of Payment” (1)The tax in respect of a taxable service provided during a tax period shall be paid by a person at the time of filing the return in respect of that period under Chapter-IV.  For the purposes of sub-section (1), a taxable service shall be considered to have been provided in the tax period during which:

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Muhammad Junaid Ghaffar Advocate High Court

Chapter III Continued (i) it was provided to the recipient; (ii) an invoice for the value of the taxable service was sent to the recipient; or. (iii) consideration for the same was received; whichever is earlier (3)Notwithstanding anything contained in sub-section (1), the Board may, by a notification in the official Gazette, direct that the tax in respect of all or such classes of taxable services, as may be specified in the aforesaid notification, shall be charged, collected and paid in any other way, mode, manner or time as may be specified therein.

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Muhammad Junaid Ghaffar Advocate High Court

Chapter III Continued (4)The tax due on taxable services shall be paid by any of the following modes, namely:(a)through deposit in a bank designated by the Board; or (b)through such other mode and manner as may be specified by the Board 41

Muhammad Junaid Ghaffar Advocate High Court

Chapter III Continued 

Section 18 “Joint & Several Liability of registered persons where tax unpaid”



Where a registered person receiving a taxable service from another registered person is in the knowledge of or has reasonable grounds to suspect that some ·or all of the tax payable in respect of that taxable service or any previous or subsequent taxable service provided would go unpaid, such person as well as the person providing the taxable service shall be jointly and severally liable for payment of such unpaid amount of tax. Provided that the Board may by notification in the official Gazette, exempt any transaction or transactions from the provisions of this section.



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Muhammad Junaid Ghaffar Advocate High Court

Chapter III Continued 

  

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Section 19. “Sales of taxable activity or transfer of ownership” Section 20. “Estate of Deceased Person” Section 21. “Estate in bankruptcy” Section 22. “Liability for payment of tax in the case of private companies or business enterprises” Muhammad Junaid Ghaffar Advocate High Court

Chapter III Continued 

Section 23 “Assessment of Tax” corresponds to section 11 of the Sales Tax Act 1990.

(1)Where on the basis of any information acquired during an audit, inquiry, inspection or otherwise, an officer of the SRB, not below the rank of Assistant Commissioner SRB is of the opinion that a registered person has not paid the tax due on taxable services provided by him or has made short payment, the officer shall make an assessment of sales tax actually payable by that person and shall impose a penalty and charge default surcharge in accordance with sections 43 and 44.

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Muhammad Junaid Ghaffar Advocate High Court

Chapter III Continued (2)No order under sub-section (1) shall be made by an officer of the SRB unless a notice to show cause is given to the person in default within five years from the end of the tax period to which the order relates specifying the grounds on which it is intended to proceed against him and the said officer shall take into consideration the representation made by such person and provide him with an opportunity of being heard if the person so desires. (3)Any order under sub-section (1) shall be made within one hundred and twenty days of issuance of the show cause notice or within such extended period as the officer of the SRB may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed sixty days.

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Muhammad Junaid Ghaffar Advocate High Court

Chapter III Continued (4)In computing the period specified in sub-section (3), any period during which the proceedings are adjourned on account of a stay order or proceedings under section 65 or the time taken through adjournment by the person not exceeding thirty days shall be excluded. (5)An order passed by an officer of the SRB under subsection (1) may be further amended as may be necessary when on the basis of information acquired during an audit, inquiry, inspection or otherwise, the officer of the SRB is satisfied that:

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Muhammad Junaid Ghaffar Advocate High Court

Chapter IV Registration (Sections 24 & 25 & rules 3 to 10)

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Section 24 “Registration”



Must be a resident as defined in Section 2(33) of the Act.



Provides any of the services listed in 2nd Schedule



Or fulfills any other criteria which the Board may prescribe. Muhammad Junaid Ghaffar Advocate High Court

Chapter IV Registration (Sections 24 & 25 & rules 3 to 10) 





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Further, a person would be deemed to be a registered person if he receives a taxable service as defined in section 3(2) for the tax period in which he receives that service, or consideration of that service has been paid by that person, whichever is earlier, and, further all the provisions of the Act and Rules will apply Procedure for Registration is provided in Chapter II Rule 3 to 10, which includes;

Rule 3 Application; Muhammad Junaid Ghaffar Advocate High Court

Chapter IV Registration (Sections 24 & 25 & rules 3 to 10) 

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Rule (4) REQUIREMENT OF REGISTRATION.(1) The providers of taxable services are required to be registered in the manner specified in this Chapter. (2).Where service provider provides one or more taxable services from one or more premises or a registered person having a centralized billing systems or centralized Accounting systems in the Province, such service from more than one premises or offices, require one registration. Muhammad Junaid Ghaffar Advocate High Court

Chapter IV Registration (Sections 24 & 25 & rules 3 to 10)

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(3).Where a registered person is providing more than one taxable service, he may make a single application mentioning therein all the taxable services provided by him Certificate of Registration in the prescribed form shall indicate details of all taxable services provided by him. 5. APPLICATION FOR REGISTRATION: A person required to be registered under the Act shall apply electronically to the Board in the prescribed Form Muhammad Junaid Ghaffar SST-01, Advocate High Court

Chapter IV Registration (Sections 24 & 25 & rules 3 to 10) 6. AUTOMATIC GRANT OF REGISTRATION: The existing taxpayers shall not be required to file application for registration. They will be automatically registered for Sindh Sales Tax on Services and the registered person shall be intimated through email or SMS and by courier or post assigning them S as prefix to NTN(S+NTN).

7. Change in particulars of Registration: 8. Transfer of Registration:

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Muhammad Junaid Ghaffar Advocate High Court

Chapter IV Registration (Sections 24 & 25 & rules 3 to 10) 9. DE-REGISTRATION: Every registered person who ceases to provide taxable service shall apply to the Board through an application for the cancellation of the registration on a prescribed Form SST-02. 10. SUSPENSION AND CANCELLATION OF THE REGISTRATION:

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Muhammad Junaid Ghaffar Advocate High Court

Chapter IV Registration (Sections 24 & 25 & rules 3 to 10) 



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Section 24A “Voluntary Registration” Section 24B “Compulsory Registration” permissible but with an advance notice to a person being compulsorily registered under the Act.

Muhammad Junaid Ghaffar Advocate High Court

Chapter IV Registration (Sections 24 & 25 & rules 3 to 10) 

Section 25 “Suspension of Registration”

The Board can suspend registration (i) If a person is not entitled to be registered; (ii)Has failed to comply with its obligations (b)Suspension can be effected by removal of name from the website of Board; (2)The Board is required to give notice stating reasons for suspension (3)If no satisfactory reply is given the Board may suspend the registration 

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Muhammad Junaid Ghaffar Advocate High Court

Chapter IV Registration (Sections 24 & 25 & rules 3 to 10) (4) At any time within 60 days of suspension Board may withdraw the suspension (5) If such withdrawal is not made, (a)Proceedings may be initiated in respect of the alleged offence; (b)Registration may be reinstated © Or the same is cancelled 55

Muhammad Junaid Ghaffar Advocate High Court

Chapter V Book Keeping and Audit Proceedings Sections 26 to 29  

 

 

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Section 26 “Records” Registered person required to keep record of all services (including exempt) in English or Urdu in a manner indicating The description and type of service Value of service Name and address of recipient Any other information required under law; Muhammad Junaid Ghaffar Advocate High Court

Chapter V Book Keeping and Audit Proceedings Continued 

  

57

The Board can also direct and regulate the number of business bank accounts to make or receive payments of such services. May also direct use of electronic cash registers for certain classes of registered persons May also regulate use of electronic software; Registered persons subject to audit under the Companies Ordinance 1984, shall be required to send a certificate from auditors certifying payment of sales tax and any deficiency as well Muhammad Junaid Ghaffar Advocate High Court

Chapter V Book Keeping and Audit Proceedings Continued

 

  

58

Section 27 “Retention of Records” Records to be retained for a period of 5 years after the end of tax period to which such record or documents relate or till final decision in any proceedings, which ever is later; Section 28 “Audit Proceedings” May be conducted once in a year ordinarily Prior notice to be issued Muhammad Junaid Ghaffar Advocate High Court

Chapter V Book Keeping and Audit Proceedings Continued   



59

After conduct of preliminary audit, audit observation to be issued which is to be replied in 21 days time and thereafter audit report to be issued; Thereafter an order will be passed in terms of section 23 or 47 as the case may be, imposing the amount of tax, default surcharge and penalty; Muhammad Junaid Ghaffar Advocate High Court

Chapter V Book Keeping and Audit Proceedings Continued 





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A person can pay the short paid amount of tax and default surcharge voluntarily before any notice, and in that case no penalty shall be imposed; If the same is done during audit before issuance of show cause, then additionally 20% of the prescribed penalty is also payable; And finally if the same is deposited after issuance of show cause notice, then 50% of the penalty is payable; Muhammad Junaid Ghaffar Advocate High Court

Chapter V Book Keeping and Audit Proceedings Continued 





61

Section 29 “Special Audit by Accountants or Cost Accountants;

Chartered

The same can be done even in case where normal audit by an officer of the SRB has been done The person so appointed shall have powers of sections 19, 39 & 42 of the Act; Muhammad Junaid Ghaffar Advocate High Court

Chapter VI Returns Sections 30 to 33 

  

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Section 30 “Returns” Every registered person to file return not later than due date in a designated Bank with the amount of tax; Quarterly returns can also be prescribed by Board; In addition annual returns can also be required; Electronic returns shall be deemed to fulfill the above requirement; Muhammad Junaid Ghaffar Advocate High Court

Chapter VI Returns Continued   



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Section 31 “Special Return” Any unregistered person can also be asked to furnish a return; Section 32 “Final Return”

Section 33 “Return deemed to have been made” Muhammad Junaid Ghaffar Advocate High Court

Chapter VII Appointments Sections 34 to 42     

Section 34 is Appointment of Authorities; Section 35 Powers Section 36 Delegation of Powers; Section 37 “Special Judges” The Government may, by notification in the official Gazette, appoint as many Special Judges a person who is serving or has retired as District and Session Judge for a period of at least 5 years and, where it appoints more than one Special Judge, it shall specify in the notification the headquarters of each Special Judge and the territorial limits within which he shall exercise jurisdiction under this Act and the rules made there under.

64

Muhammad Junaid Ghaffar Advocate High Court

Chapter VII Appointments Continued 



65

A person shall be appointed as a Special Judge, if he has served as Judge in BS 21 or above for at least a period of 7 Years and qualifies to be a Judge of High Court. If a Special Judge is, for any reasons, temporarily unable to perform his duties under this Act or the rules made there under, he may generally or specially authorize the Sessions Judge of the district to perform such duties of an urgent nature as he may deem proper and such Sessions Judge shall perform such duties. Muhammad Junaid Ghaffar Advocate High Court

Chapter VII Appointments Continued 

Section 38 “Cognizance of offences by Special Judges”



upon a report in writing made by an officer of the SRB, not below the rank of Deputy Commissioner SRB with the approval of the Commissioner SRB, or by an officer especially authorized in this behalf by the Government; upon receiving a complaint or information of facts constituting such offence made or communicated by any person; or upon his knowledge acquired during any proceeding before him.





66

Muhammad Junaid Ghaffar Advocate High Court

Chapter VII Appointments Continued

67



Section 39 “Application of Code of Criminal Procedure”



Section 40 “Exclusive Jurisdiction”



Section 41 Place of Sitting;



Section 42 Appointment of Prosecutors” Muhammad Junaid Ghaffar Advocate High Court

CHAPTER VIII (OFFENCE AND PENALITIES) sections 43 to 56)

68



43. Offences and Penalties



Whoever commits any offence described in column (1) of the Table below shall, in addition to and not in derogation of any punishment to which he may be liable under any other law, be liable to the penalty mentioned against that offence in column (2) thereof. The Sections referred to in column (3) are meant for illustrative purposes only and the corresponding offence described in column (1) may fall and be prosecuted under other sections of this Act as well. Muhammad Junaid Ghaffar Advocate High Court

CHAPTER VIII (OFFENCE AND PENALITIES)  

69

Section 44. “Default Surcharge” Notwithstanding the provisions of section 23, if a registered person does not pay the tax due or any part thereof, whether willfully or otherwise, in time or in the manner specified under this Act, rules or notifications issued there under, he shall, in addition to the tax due and any penalty under section 43, pay default surcharge at the rate mentioned below:Muhammad Junaid Ghaffar Advocate High Court

CHAPTER VIII (OFFENCE AND PENALITIES) 



70

the person liable to pay any amount of tax or charge, shall pay default surcharge at the rate of Inter-Bank Rate plus three per cent per annum of the amount of tax due; and in case, the default is on account of tax fraud, the person who has committed tax fraud shall pay default surcharge at the rate of two per cent per month, of the amount of tax evaded, till such time the entire liability including the amount of default surcharge is paid Muhammad Junaid Ghaffar Advocate High Court

CHAPTER VIII (OFFENCE AND PENALITIES) 



71

For the purpose of calculation of default surcharge, the period of default shall be reckoned from the sixteenth day of a month (following the due date of the tax period to which the default relates) to the day preceding the date on which the tax due is actually paid.

Explanation-- For the purpose of this section tax due does not include the amount of penalty. Muhammad Junaid Ghaffar Advocate High Court

CHAPTER VIII (OFFENCE AND PENALITIES)    

72

Section 45 “Exemptions form penalty and Default Surcharge” Section 46 “Compounding of Offences” Section 47 “Recovery of Tax not levied or short levied”; By reason of some inadvertence, error or miscalculation on the part of an officer of the SRB any short levied tax or charge can be recovered within 5 years after issuance of notice; Muhammad Junaid Ghaffar Advocate High Court

CHAPTER VIII (OFFENCE AND PENALITIES) 





73

Amount of tax short levied to be determined after reply of tax payer Order to be made within 120 days extendable to a maximum of 60 days, excluding the adjournments sought by the tax payer; Section 48 “Power to summon persons to give evidence and documents” Muhammad Junaid Ghaffar Advocate High Court

CHAPTER VIII (OFFENCE AND PENALITIES) 





74

Section 49 “power to arrest and prosecute” Person involved in tax fraud can be arrested by the an officer not below the rank of Commissioner; If a company has committed tax fraud, every director or officer of that company shall be liable to be arrested; Muhammad Junaid Ghaffar Advocate High Court

CHAPTER VIII (OFFENCE AND PENALITIES) 





75

Section 50 “Procedure to be followed on arrest of a person” Section 51 “ Authorized officers to have access to premises, stocks, accounts and records” Section 52 “Obligation to produce documents and provide information” Muhammad Junaid Ghaffar Advocate High Court

CHAPTER VIII (OFFENCE AND PENALITIES)    

76

Section 53 “Searches under warrant” Section 54 “Posting of an officer of SRB to business premises” Section 55 “Revision by the Commissioner” Section 56 “Revision by the Board”

Muhammad Junaid Ghaffar Advocate High Court

CHAPTER IX (Appeals) Sections 57 to 65A)  



77

Section 57 “Appeals” Any person, other than the Board or any of its officers, aggrieved by any decision or order passed under sections 13, 18, 19 or 38 by an officer of the SRB may, within thirty days of the date of receipt of such decision or order, prefer an appeal to the Commissioner (Appeals) SRB.

sections should be 23 & 47 and needs amendment in this regard; Muhammad Junaid Ghaffar Advocate High Court

CHAPTER IX (Appeals) Continued  

78

Section 58 “Procedure in Appeal” Stay can be granted to a tax payer without notice to department for 15 days and thereafter hearing both the parties can be confirmed, varied or vacated but cannot remain valid for more than 60 days under any situation; Muhammad Junaid Ghaffar Advocate High Court

CHAPTER IX (Appeals) Continued   

79

Section 59 “Decision in Appeal” Order to be passed in maximum of 120 days which is further extendable to 60 days;

Where the Commissioner (Appeals) SRB has not made an order under sub-section (1) before the expiration of four months from the end of the month in which the appeal was lodged, the relief sought by the appellant in the appeal shall be treated as having been given and all the provisions of this Act shall have effect accordingly. Muhammad Junaid Ghaffar Advocate High Court

CHAPTER IX (Appeals) Continued 



A person may be appointed as a Judicial Member of the Appellate Tribunal if the person-is qualified to be a Judge of High Court and has remained a Judge of the District court for at least 5 years,



is below the age of sixty-five years.



80

Section 60 “Appellate Tribunal”

Muhammad Junaid Ghaffar Advocate High Court

CHAPTER IX (Appeals) Continued 



 

81

A person may be appointed as an Accountant Member of the Appellate Tribunal if the person is an officer of the SRB/ FBR equivalent in rank to that of: a Commissioner (Appeals) SRB/ FBR having at least three years experience as Commissioner SRB; or a Commissioner SR8/FBR having at least five years experience- as Commissioner SRB; and is below the age of sixty-five years; Muhammad Junaid Ghaffar Advocate High Court

CHAPTER IX (Appeals) Continued 







82

Notwithstanding above, Government may, for three years from the day this Act comes into effect, appoint any person who has worked for a minimum of three years: in the Federal Board of Revenue or Provincial Excise and Taxation Department in the rank not below the Bs.20 for 5 years in aggregate, or as Collector of Sales Tax (Appeals) under sub-section (b) of section 30 of the Sales Tax Act 1990,for 3years with service of at least 5 years in Bs. 20, as an Accountant Member of the Appellate Tribunal

Muhammad Junaid Ghaffar Advocate High Court

CHAPTER IX (Appeals) Continued     

83

Section 61 “Appeal to Appellate Tribunal” Section 62 “Disposal of Appeal by Tribunal” Dismissal of appeal on Non prosecution; Stay can be granted without notice to be confirmed or varied within 30 days; Shall in no case be operative for more than 90 days; Muhammad Junaid Ghaffar Advocate High Court

CHAPTER IX (Appeals) Continued 

  

84

The Tribunal can modify, annul and remand the order appealed against; Section 63 “Reference to High Court” Section 65 “Alternate Dispute Resolution” Section 65A“Appointment of Ombudsman”

Muhammad Junaid Ghaffar Advocate High Court

CHAPTER X & XI    



85

Section 66 “Recovery of Arrears” Provisions of Land Revenue Act 1967 would apply mutatis mutandis Section 67 “Agent” means; where the person is an individual under a legal disability the guardian or manager who receives or is entitled to receive income on behalf, or for the benefit of the individual; where the person is a company (other than a trust, a Provincial Government. or local authority in Pakistan), a director or a manager or secretary or accountant or any similar officer of the company; Muhammad Junaid Ghaffar Advocate High Court

CHAPTER X & XI Continued 

where the person is a trust declared by a duly executed instrument in writing whether testamentary or otherwise, any trustee of the trust;





86

where the person is a Provincial Government, or local authority in Pakistan, any individual responsible for accounting for the receipt and payment of money or funds on behalf of the Provincial Government or local authority; where the person is an association of persons, a director or a manager or secretary or accountant or any similar officer of the association or in the case of a firm any partner in the firm; Muhammad Junaid Ghaffar Advocate High Court

CHAPTER X & XI Continued 





87

where the person is the Federal Government, any individual responsible for accounting for the receipt and payment of moneys or funds on behalf of the Federal Government; or. where the person is a public international organization, or a foreign government or political sub-division of a foreign government, any individual responsible for accounting for the receipt and payment of moneys or funds in Pakistan on behalf of the organization, government, or political subdivision of the government. When any person is expressly or impliedly authorized by a registered person to be his agent for all or any of the purposes of this Act. Muhammad Junaid Ghaffar Advocate High Court

CHAPTER X & XI Continued 

  

88

Section 68 “Liability and obligations of agents” Section 69 “Liability of the registered person for the acts of his agent” Section 70 “Appearance by Authorized Representative” Section 71 “E-Intermediaries” Read with Rules 18 to 20 of Chapter IV of Rules. Muhammad Junaid Ghaffar Advocate High Court

Important Rules under section 72 Read with 13 of the Act 

 

89

Chapter IV Procedure for collection of sales tax on services, Rule 24 to 29; Rule 28 deals with Determination of Tax Liability; Rule 29 deals with Record Keeping and Invoicing;

Muhammad Junaid Ghaffar Advocate High Court

Part I  



90

Rule 30 Procedure for collection of Sales tax on services provided by banking companies, financial institutions and non-banking finance companies (1) The provisions of these rules shall apply for collection of Sales tax on services by persons providing or rendering financial services as notified under the Second schedule to the Act. (2) Every banking company and non-banking financial company shall pay the sales tax leviable on all services rendered or provided to any person except the services of utility collection, Umra and Hajj service, cheque book issuance cheque return, Musharika and Modarba Financing. Muhammad Junaid Ghaffar Advocate High Court

Part I



 



91

The central offices located in the Province of Sindh shall apply to the Sindh Revenue Board for registration; The tax under these rules shall be paid on the gross amount charged for service provided to the customers excluding mark-up or interest. The tax shall be paid along with the return If not deposited by the due date, it shall, in addition to the payment of Sales tax and default surcharge, be also liable to penalty under the Act or these rules. Not be required to issue invoices. A reconciliation statement shall be filed by 5th of the month following the end of every quarter. Muhammad Junaid Ghaffar Advocate High Court

Part I 



92

Each outlet of the company located in Sindh shall maintain records of the services provided or rendered

The Central Office in the Province of Sindh shall submit a copy of annual audit report to the commissioner of sales tax with in 15 days of its publication and any short collection of tax found out as a result of such audit report shall be paid by the registered person within 15 days of the notice received for such collection. Muhammad Junaid Ghaffar Advocate High Court

Part II    



93

Rule 31 Procedure for Insurance Companies; Sales tax on gross amount of premium; Shall be accounted for in the same month in which the premium is received; In case Sales tax is not paid by the due date, in addition to the payment of Sales tax and default surcharge, also liable to penalty under the Act or these rules. shall not be liable to pay the Sales tax in respect of contract or any part thereof if cancelled. Muhammad Junaid Ghaffar Advocate High Court

Part II 



94

Maintain records and submit returns as the Board may prescribe from time to time. annual audit report, duly audited by a chartered accountant, shall be submitted to the Commissioner within 15 days of its receipt and any short payment of Sales Tax found out as a result of such audit shall be paid within 15 days of the receipt of the audit report and proof of such payment shall be furnished to the Board Muhammad Junaid Ghaffar Advocate High Court

Rule 32 Shipping agents; 





95

Shall charge, collect and pay the Sales Tax in respect of each ship handled by him which calls at any port of Pakistan after calling on a foreign port. shall pay Sales Tax on commission charged on the net ocean freight amount of cost and freight import or export cargo for such services provided or rendered by him. value of taxable services shall not include reimbursable expenses (except any fee or share in charges realized)incurred by an agent, such as freight, pilot age and berth-hiring charges, port dues, cargo expenses, brokerage paid on export cargo and ship handling expenses paid to the stevedores including all ancillary charges. Muhammad Junaid Ghaffar Advocate High Court

Rule 32 Shipping agents;  



96

tax due for each month shall be paid at the time of filing of return by the 15th The Assistant Collector of the concerned Customs shall not grant final port clearance to a ship unless the agent furnishes proof of filing of return and proof of payment of tax (if shown payable in the return). shall furnish to the Board a monthly statement in respect of ships handled by him by the 15th day of the following month, in the prescribed manner.

Muhammad Junaid Ghaffar Advocate High Court

Part IV Advertising Companies 



97

shall maintain account of all services & shall issue a bill of charges for each transaction from a duly bound book of serially numbered bills of charges or electronically generated invoices which shall include the particulars of the person providing or rendering service, description of the service provided or rendered and the amount charged. bill referred to in sub-rule(2) shall be given to the person to whom such services have been provided or rendered and one copy thereof shall be retained by the person providing or rendering services in the said bound book of bills of charges. Muhammad Junaid Ghaffar Advocate High Court



  

Not more than one book of bill shall be used at one time provided that where such person has one or more branches of the establishment; separate book of bill of charges may be used for each such branch. The advertising agent shall also maintain their accounts in register on a weekly basis ending every Thursday The person providing or rendering service shall pay duty on quarterly basis by the 15th day of November, February, May and August on the basis of the amount of commission charged or billed during the last quarter.

98

Muhammad Junaid Ghaffar Advocate High Court

Part V Advertisement on TV/Radio   



99

“taxable services” means the services in respect of advertisementsBroadcast or telecast by TV or radio stations based in Pakistan; Booked in Pakistan for broadcasting or telecasting on TV or radio stations based abroad, whether or not possessing landing rights in Pakistan; and Transmitted on closed circuit T.V. or cable T.V. networks. Muhammad Junaid Ghaffar Advocate High Court

Part V Advertisement on TV/Radio 





10 0



Value of taxable service shall be the total consideration in money received or the gross amount charged by a service provider from his clients for broadcasting or telecasting of any advertisement on radio or television, including all Federal and Provincial levies but excluding the amount of sales tax. Client (Registered) whose advertisement is released on radio or television, and to whom the sales tax invoice is issued can claim input adjustment of tax paid on account of advertisement on radio or television subject to Payments through banking channels as is easily verified; invoices issued are in accordance with the specimen Muhammad Junaid Ghaffar Advocate High Court

Part VI Telecommunication 

  

10 1

Every person engaged in telecommunication services as mentioned in the Second Schedule must register and pay Sales Tax In case of post paid telephone services, by the 21st day of the following second month; In case of pre-paid telephone services, by the 21st day of the following month; and In case of other services, by the 21st day off the following month Muhammad Junaid Ghaffar Advocate High Court

Part VI Telecommunication 

 

10 2

the person shall be entitled to deduct input tax paid on procurement of any equipment or the Sales tax paid on acquiring services in connection with the provision of telecommunication services. Shall submit revenue wise statement with proof of payment of Sales Tax in the prescribed manner Muhammad Junaid Ghaffar Advocate High Court

Part VII Franchise Fee services 



10 3

Where payment of franchise/technical fee or royalty is made under a proper agreement the assessable value for the purpose of levy of 10% sales tax shall be the gross amount remitted or paid to the franchiser or the amount laid down in the franchise agreement; For beverage companies, without formal agreement the value for sales tax shall be 10% of concentrate vlaue supplied by the franchisor. However, in such cases where proper remittance fee is being made by the beverage company to the local or foreign franchiser under a proper agreement, the assessable value shall be the gross amount of fee or royalty remitted or paid to the franchiser or the amount laid down in the agreement; Muhammad Junaid Ghaffar Advocate High Court

Part VII Franchise Fee services 





10 4

Similar provision exists for food sector, in case of an agreement. However In case there is no formal agreement the assessable value for levy of sales tax shall be 10% of the net sales of the franchisee; In case where the franchiser and franchisee are local the liability to deposit the franchise fee or royalty shall be upon the franchiser ; the sales tax shall be payable on the 15th day of the month, following the payment month laid down in the franchise agreement. Where there is no date prescribed in the agreement or in case of no agreement the tax shall be payable on the 15th day on quarterly basis. Muhammad Junaid Ghaffar Advocate High Court

Part VIII Custom Agents & Ship Chandlers Rule 37  

Value of service shall be the total consideration received by a Customs agent for providing the service. It shall not include considerations received on account of transportation charges, demurrage, wharfage, customsduties, excise duty, sales tax, provincial duties or taxes, toll taxes, municipal charges, port charges; handling charges, packing charges, labor payment and such other reimbursable expenses paid on behalf of clients against a proper receipt.



10 5



fee or commission is realized from such service providers then the same shall be included in the base for application of the tax rate. Muhammad Junaid Ghaffar Advocate High Court

Ship Chandlers  

10 6

Value for sales tax shall be total consideration received for providing services, shall not include consideration received on other accounts such as transportation charges, toll taxes, municipal charges, port charges, handling charges, packing charges and labor charges, which a shipchandler pays on behalf of his clients against a proper receipt or bill. However if any fee or commission is realized from such service providers then the same shall be included in the base for application of the tax rate. Muhammad Junaid Ghaffar Advocate High Court

Rule 38 & 39 Stevedores & Freight Forwarders   

10 7

Every person registered as stevedore shall file monthly sales tax return in the manner as prescribed in these rules. The cases or disputes relating to the stevedores operating under these rules shall be dealt with by the Board. Freight forwarder is person who provides or renders or is engaged for his principals or client(s) for providing or rendering of services, for fee or charges or commission or remuneration for some or all the services being provided by the Shipping agents, Clearing agent, Stevedore, Ship Chandler, Terminal Operator or such services of warehousing and/or provides cover or guarantee for insurance or banking services, Muhammad Junaid Ghaffar Advocate High Court

Rule 38 & 39 Stevedores & Freight Forwarders



10 8

in respect of imports or exports of goods, whether independently or in partnership or in arrangement with any such service provider or renderer. will pay Sales Tax on providing, rendering of services or arranging thereof, of any or all such services; at the rate of 16% of fee, commission, remuneration or charges invoiced for such services. Muhammad Junaid Ghaffar Advocate High Court

Rule 40 Port & Terminal Operators  

 

10 9

Sales tax on import related services by Port and Terminal Operator namely:Piloting and mooring; Delivery charges; Storage in port area including demurrage; Wharfage; and Other import related services provided in port area. Value for levy of sales tax shall be the gross amount charged for the services. shall maintain records under section 26 of the Act. Muhammad Junaid Ghaffar Advocate High Court

Rule 41 (Stock Brokers) 



11 0

Value of sales tax shall be gross commission charged from clients in respect of purchase or sale of shares in a Stock Exchange. shall maintain records as stipulated in section 26 of the Act in such manner as will enable distinct ascertainment of payment of tax due Muhammad Junaid Ghaffar Advocate High Court

Rule 42 Hotels, restaurants, Clubs, Caterers (Services related to food items, drinks & eatables) 



11 1



Such Persons having Rs3.6 M per annum turnover of all the outlets required to be registered which shall be determined keeping in view area, location, city, menu served, capacity and by delivery and sale/supply, if not otherwise determinable. Hotels, restaurants, marriage halls, lawns, clubs and caterers shall charge/pay sales tax at the rate specified in Second Schedule of the Act for supplying foods No free of charge/lower than menu price. Muhammad Junaid Ghaffar Advocate High Court

Rule 42 Hotels, restaurants, Clubs, Caterers (Services related to food items, drinks & eatables) 





11 2

The food served by flight- kitchens on-board the conveyance leaving for a destination outside Pakistan shall be exempt. Other services provided or rendered by clubs and hotels: In relation to clubs, the value of taxable services shall be the gross amount charged including fee relating to award of new membership, monthly membership fee and all Federal or Provincial levies, if any, which club receives from its members or clients for providing or rendering taxable services. It shall not include consideration received on account of refundable deposit or security unless the same is deducted or adjusted in full or in part as settlement or recovery of dues for services. Muhammad Junaid Ghaffar Advocate High Court

Rule 42 Hotels, restaurants, Clubs, Caterers (Services related to food items, drinks & eatables) 

  



11 3



In relation to hotels, the provisions of this part shall apply for collection and payment of Sales Tax on all the services like gym, sports, swimming, golf, events organized, exhibitions, shows, parties etc, used by the clients in addition to the food, drinks and other eatables. Every registered person shall submit the monthly return Every person shall print, the price of each item; The consumer shall be billed accordingly; The registered persons shall issue a serially numbered Sales Tax invoice or bill. shall maintain all records as prescribed under the Act Muhammad Junaid Ghaffar Advocate High Court

Rules 43 to 59

11 4



Tax Payers authorized representatives;



Special Audit Rules;



Alternate Dispute Resolution;



Appeals and Allied Matters; Muhammad Junaid Ghaffar Advocate High Court

Issues to be considered by SRB 





11 5

Definition of Value of Taxable Service in terms of section 5 is vague and is dependent on open market price in terms of section 6 which is alien to the concept of competitive services; Input Tax admissibility should be crystal clear and unambiguous; Section 15 read with Rule 22 do not assist the tax payer; Services not taxed by other Provinces shall also be exempted; otherwise, would amount to discrimination; Muhammad Junaid Ghaffar Advocate High Court

Issues to be considered by SRB 



11 6

Since the Act and the rules are in its infancy, the filing of returns for July should be clubbed with returns of August 2011 to facilitate the genuine tax payer; Sales Tax entrusted to FBR on the basis of Record Note as agreed upon between FBR and Provinces and categorization of Standalone Group, Telecommunication Group & Services requiring Input/output adjustments be clarified; Muhammad Junaid Ghaffar Advocate High Court

Issues to be considered by SRB 



11 7

The Qualifications of becoming a Judicial Member of Tribunal must be amended to include persons who are Advocates of High Courts and are eligible to be a Judge of a High Court, similar to the Customs Act; Finished Products liable to Sales Tax under the 1990 Act as goods, also involve services as part of their value of supply. If Such products are required to pay sales tax on services separately by the same person, then beside double taxation, lot of issues of registration, documentation etc would crop up Muhammad Junaid Ghaffar Advocate High Court

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