Sales Tax On Software - Printable Version

Sales Tax On Software - Printable Version

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Sales Tax On Software - isrpl - 07-13-2011

Can any one explain about that any software house that is registered as private limited and member of PSEB and registered with SBP as an exporter but doing only local business of software development as well as support services. will it be necessary to register in sales tax if yes then on which services will GST apply. On software development or support services or both of them.

please answer with firm references because many references are confusing and a lot of software houses are not accepting about the GST enforcement of this industry neither clients are willing to pay GST

- student_of_law - 07-13-2011

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by isrpl
 Can any one explain about that any software house that is registered as private limited and member of PSEB and registered with SBP as an exporter but doing only local business of software development as well as support services. will it be necessary to register in sales tax if yes then on which services will GST apply. On software development or support services or both of them.

please answer with firm references because many references are confusing and a lot of software houses are not accepting about the GST enforcement of this industry neither clients are willing to pay GST
<hr height="1" noshade id="quote"></blockquote id="quote">

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by isrpl
 Can any one explain about that any software house that is registered as private limited and member of PSEB and registered with SBP as an exporter but doing only local business of software development as well as support services. will it be necessary to register in sales tax if yes then on which services will GST apply. On software development or support services or both of them.

please answer with firm references because many references are confusing and a lot of software houses are not accepting about the GST enforcement of this industry neither clients are willing to pay GST
<hr height="1" noshade id="quote"></blockquote id="quote">

As far as province of Sindh is concerned, the sales tax has been imposed by s.3 of Sindh Sales Tax on Services Act, 2011 on the services mentioned in the Second Schedule. I could not find the entry "Software or IT based system development consultants" in the Second Schedule.
Those who think that tax has been imposed on services of software consultants may please share the relevant provision and entry in law.

- LapTop - 07-13-2011

According to Section 13 of sales tax act, jo items sixth schedule may darj han wo exempt han chahay impot hon ya local supply hon.
Sixth schedule ki serial number 41 par computer software darj han.

Or support services bhi sales taxable nahi hayn.

- isrpl - 07-13-2011

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by LapTop
 According to Section 13 of sales tax act, jo items sixth schedule may darj han wo exempt han chahay impot hon ya local supply hon.
Sixth schedule ki serial number 41 par computer software darj han.

Or support services bhi sales taxable nahi hayn.

<hr height="1" noshade id="quote"></blockquote id="quote">

You are absolutely right but many consultant are quoting pakistan custom tariff chapter 98 Services heading 9815.6000 which clearly mentioned Software or IT based system development consultants should be charged 16%
please comments

- LapTop - 07-14-2011

FBR withdraws FED to the Sales Tax on services receivable by the provinces to avoid double taxation.
The Services rendered by registered persons who were previously subject to Federal Excise Duty (being
collected in Sales Tax mode) have now been subject to Sales Tax by the Provinces through their legislation
with effect from 1st July, 2011. The Federal Board of Revenue through a notification has withdrawn Federal
Excise Duty on such services (Table-II of First Schedule to the Federal Excise Act, 2005) with effect from
the same date i.e. 1st July, 2011 in order to avoid double taxation.

However, the registered persons providing such services will continue to charge Tax/Duty and file Sales
Tax Returns as before with certain amendments being worked out in Federal Board of Revenue and the
registered persons shall face no difficulty for switching from Federal Excise Duty to the Sales Tax on
Services receivable by the Provinces.

http//www.srb.gos.pk/FBR/Federal%20Board%20of%20Revenue%20(FBR),%20Government%20of%20Pakistan.pdf

Ye notification FBR nay jari kiya hay, jis k tahat services par say FED khatan kar di gai hay.
Is notification ka reference dayny ka sirf ye maqsad hay k is notification may services par say FED khatam karny k liye Table-II of First Schedule to the Federal Excise Act, 2005 ka zikar kiya gya hay jab k custom tariff ka koi zikar nahi, is say aap ko ye baat samajhny may aasani ho gi k services par FED vat mode sirf un services par lagta hay jo k Table-II of First Schedule to the Federal Excise Act, 2005 may darj hon na k custom tariff may.

- student_of_law - 07-14-2011

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by LapTop
 According to Section 13 of sales tax act, jo items sixth schedule may darj han wo exempt han chahay impot hon ya local supply hon.
Sixth schedule ki serial number 41 par computer software darj han.

Or support services bhi sales taxable nahi hayn.

<hr height="1" noshade id="quote"></blockquote id="quote">

You have rightly pointed out, however that is not in force with effect from July 2011. Please refer to the Finance Act, 2011 which says,

"(11) in the Sixth Schedule,â

(a) in Table-I, in column (1), serial numbers 29A, 29B, 30, 34, 35, 41,42, 43, 44, 62, 64, 65, 66, 67, 68, 69 and 70 and the corresponding
entries relating thereto in columns (2) and (3) shall be omitted"

- student_of_law - 07-14-2011

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by LapTop
 FBR withdraws FED to the Sales Tax on services receivable by the provinces to avoid double taxation.
The Services rendered by registered persons who were previously subject to Federal Excise Duty (being
collected in Sales Tax mode) have now been subject to Sales Tax by the Provinces through their legislation
with effect from 1st July, 2011. The Federal Board of Revenue through a notification has withdrawn Federal
Excise Duty on such services (Table-II of First Schedule to the Federal Excise Act, 2005) with effect from
the same date i.e. 1st July, 2011 in order to avoid double taxation.

However, the registered persons providing such services will continue to charge Tax/Duty and file Sales
Tax Returns as before with certain amendments being worked out in Federal Board of Revenue and the
registered persons shall face no difficulty for switching from Federal Excise Duty to the Sales Tax on
Services receivable by the Provinces.

http//www.srb.gos.pk/FBR/Federal%20Board%20of%20Revenue%20(FBR),%20Government%20of%20Pakistan.pdf

<hr height="1" noshade id="quote"></blockquote id="quote">

The above mentioned link takes us to the press release. however, I could not find the notification on FBR website. If anyone has that notification in his possession or found it on some website, please share it with us.

We usually wander from one law to another which makes the things complex.

If we are talking about sales tax, then we must identify the law applicable first.

If it is sales tax on goods, then sales Tax Act, 1990 is applicable. As earlier stated, the exemption given to computer software in Sixth Schedule has been withdrawn by Finance Act, 2011. Even before exemption if you see the relevant entries from custom tariff mentioned on serial No.41 of Sixth Schedule, they mainly relate to disks and cards but the entry 8523.8030 which is "information technology software" was not included in serial number 41 even before July, 2011.

I am not clear whether a software is taken as goods or not. I think it is as information technology software is mentioned in chapter 85 of custom tariff which deals with goods. If any body can cite an example through judgment or circular that may clarify this position. Provided software is included in the definition of goods, then sales tax is chargeable on it under Sales Tax Act ,1990.

Now we come to the question whether sales tax is applicable on software development consultancy services. In this regard, sales tax Act, 1990 is wholly irrelevant because, sales tax on service cannot be levied by Federation, it is a provincial subject (Entry 49 of Federal Legislative List - Fourth Schedule of the Constitution) for this purpose we have to see the provincial law. For Sindh, it is Sindh Sales Tax on Services Act, 2011.

Sindh Sales Tax on Services Act, 2011 does not impose sales tax on "Software or IT based system development consultants" as this entry is not found in Second Schedule thereto.

Regarding Federal Excise duty, very valuable information has already been shared by "Laptop".

In this regard one important distinction is to be made. If software firm is developing and selling software and suppose software is included in the definition of goods under Sales Tax Act, 1990 then we have to demarcate what does that firm earns by selling goods(software) and what does it earn by providing consultancy services. Former is taxable under Sales Tax Act, 1990 while the latter may be taxed by provincial legislature only (though currently provincial legislature of Sindh has not taxed this service).

Important questions that needs answers

Whether software is goods under Sales Tax Act, 1990
Demarcation when a software firm is selling goods and when it is making services.

The above is my opinion based on reading of law, however, any one having practical experience of handling software matters, is invited to share his valuable input and correct us