Withholding Sales Tax on Services in Pakistan

Introduction

Withholding sales tax on services in Pakistan is deducted/collected by a withholding agent while making payment for services received. As sales tax on services is a provincial subject, therefore respective provincial laws and rules relating to services sales tax deal with withholding sales tax on services. However, the federal government through Federal Board of Revenue (FBR) deals with withholding sales tax on services in the Capital Territory of Islamabad.

Withholding Sales Tax On Services-Islamabad Capital Territory

The Sales Tax Special Procedure (Withholding) Rules 2007 deal with deduction/collection of sales tax on services in the Islamabad Capital Territory.

Withholding Sales Tax On Services-Punjab

Withholding sales tax on services is dealt under Punjab Sales Tax Services (Withholding) Rules 2015.

Exemption

The telecommunication, banking, courier, and insurance services, provided by companies being active tax payers, are exempt from withholding of sales tax under Punjab Sales Tax Services (Withholding) Rules 2015.

Withholding from registered persons

A withholding agent shall withhold whole amount of sales tax as mentioned in the sales tax invoice by a registered person other than the persons rendering advertisement services and shall remit the remaining amount to the registered person providing services.

Withholding from Un-registered persons

A withholding agent shall deduct sales tax at applicable rates from gross amount of taxable supplies, other than advertising services, provided by an un-registered person by keeping CNIC and National Tax Number (NTN) of the registered person.

Withholding on Advertising Services

A withholding agent shall deduct sales tax at applicable rates from gross amount of advertisement services by a person based in Pakistan or from abroad.

Deposit/Payment of Withholding Sales Tax on Services-Punjab

According to the Rule 13 of Punjab Sales Tax on Services (Withholding) Rules 2015, the sales tax deducted or withheld on services in Punjab will be deposited with the Government under the head “B-2385 Punjab Sales Tax on Services (Withholding)” by the 15th of the month following the of the sales tax invoice.

Failure to Pay Withholding Sales Tax on Services-Punjab

As per Rule 14 of Punjab Sales Tax on Services (Withholding) Rules 2015, where a withholding agent fails to withhold sales tax on services as required under the said rules or does not deposit the sales tax withheld in the government sales tax account, such withholding agent will be personally liable to pay such sales tax under Punjab Sales Tax on Services (Recovery) Rules 2012.

Withholding Sales Tax On Services-Khyber-Pakhtunkhwa

Khyber-Pakhtunkhwa Sales Tax On Services (Withholding) Regulation, 2020 deal with withholding sales tax on services in Khyber-Pakhtunkhwa.

Withholding Agents

Following departments and persons have been declared as withholding agents under Khyber-Pakhtunkhwa Sales Tax On Services (Withholding) Regulation, 2020:

• Federal government departments;
• Khyber-Pakhtunkhwa provincial government departments;
• Khyber-Pakhtunkhwa district government departments;
• Khyber-Pakhtunkhwa local government departments;
• All public sector organizations, institutions, authorities, autonomous bodies, universities, boards, projects, enterprises, ventures, and entities under federal, provincial, district and local government(s).
• Companies as defined under Khyber-Pakhtunkhwa Sales Tax On Services Act, 2022

Exemption from Withholding Sales Tax On Services-Khyber Pakhtunkhwa

Telecommunication services other than services exchanged between telecom companies and other services as declared by Authority will be exempt from withholding sales tax on services in Khyber-Pakhtunkhwa.

Application of Withholding Sales Tax On Services-Khyber Pakhtunkhwa

The following services shall be subject to hundred percent withholding of sales tax at the applicable rates:

• Advertisement services;
• Services provided by unregistered persons or persons not appearing Active Taxpayers List (ATL);
• Services received by Federal or Provincial Government Departments or public sector organizations.
• Services liable to sales tax at reduced rate

Payment of Withholding Sales Tax On Services-Khyber Pakhtunkhwa

• If a withholding agent is registered exclusively as a service provider, he shall deposit sales tax withheld on services on the due date when input tax is claimed for the month or when the payment is made to the service provider which is earlier.
• If a withholding agent is not registered as a service provider, but is registered with FBR under Sales Tax Act 1990, he shall deposit sales tax withheld on services on the due date when input tax is claimed for the month while filing sales tax return with FBR or when the payment is made to the service provider which is earlier.
• In all other cases, sales tax withheld  on services will be deposited by 15th of month following the month in which payment made to the service provider.

Failure or Default in Withholding Sales Tax on Services-Khyber Pakhtunkhwa

Where a withholding agent fails to withhold sales tax on services or fails to deposit sales tax withheld on services, an officer not below the rank of Assistant Collector can recover the such sales tax by issuing a show cause to the withholding agent along with default surcharge and penalty.

Withholding Sales Tax On Services-Sindh

Withholding sales tax on services in Sindh is dealt under the Sindh Sales Tax Special Procedure
(Withholding) Rules, 2014.

Withholding Agents-Sindh

Following persons are designated under Rule 1(2) of the Sindh Sales Tax Special Procedure (Withholding) Rules, 2014:

• Federal, provincial, local and district government departments;
• Autonomous bodies, public sector organisations, regulatory bodies and authorities;
• Organisations funded fully or partially by government budget grants;
• Companies;
• Persons registered with FBR, SRB;
• Persons or passengers using the services of a cab aggregator;
• Persons receiving services of a truck aggregator;
• Persons receiving services from contractors and construction services at reduced sales tax;
• Withholding agent must be resident or having a place of business in Sindh.

Exemption from Withholding Sales Tax On Service In Sindh

The tax invoices or bills issued by SRB-registered service providers of telecommunication, banking company, financial institution, insurance company other than re-insurance company, port operator, airport operator, terminator operator, and airport ground services are exempt from withholding from sales tax.

Application of Withholding Sales Tax On Services-Sindh

• If recipient of services are federal government, provincial government, district or local government, autonomous bodies and public sector organisations, four-fifth of sales tax as shown in the sales tax invoice will be withheld.
• The  federal government, provincial government, district or local government, autonomous bodies, public sector organisations, project financed by government grants, persons registered with FBR or SRB will withhold sales as mentioned on the sales tax by the service providers in case of advertisement, auctioneers, renting of immovable property and inter-city transportation or carriage of goods by road
  (other than the services of inter-city, transportation and carriage of goods through truck addas or
  through bus/wagon stands) as are provided or rendered by a person registered with SRB or by a non-resident person based in a country other than Pakistan. However, if the sales tax amount is not mentioned in the sales tax invoice, sales tax will be withheld at the applicable rate.
• The SBR-registered persons receiving services from un-registered persons or persons not appearing in ATL, SBR-registered persons or insurers receiving services from insurance agents or insurance brokers, persons receiving services from a cab, persons receiving services from truck aggregator, persons receiving services from contractors or  constructions services subject to reduced rate of sales tax, shall withhold whole amount of sales tax.
• In all other cases the withholding agent will withhold one-fifth of the sales tax mentioned in the sales tax invoice or at the applicable rate if the sales tax is not mentioned in the invoice.

Withholding Sales Tax On Services-Balochistan

Withholding sales tax on services in Balochistan is dealt under the Balochistan Sales Tax Special Procedure (Withholding) Rules 2018 which are similar to withholding sales tax on services in Sindh.