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CBR to simplify GST collection on Customs agents' services

ISLAMABAD (March 02 2004): The Central Board of Revenue (CBR) is working to simplify procedure of general sales tax (GST) collection on the services provided by custom agents, sources told Business Recorder here on Monday.

In this connection, the CBR has in agreed principle to withdraw a ruling on chargebility of sales tax on services provided by transporters, carpenters, labourers, etc, who are not engaged by customs agents, but they are contractual employees of importers/exporters.

The final decision in this connection is expected at a meeting between Sales Tax House Karachi and Karachi Customs Agents Group (KCAG) on March 6, 2004 in Karachi.

Details revealed that KCAG has shown reservations over the CBR's clarification of November 6, 2003, arguing that the said ruling is in clash with CBR's clarifications of December 5, 2001 and April 3, 2002.

KCGA has asked CBR to clarify whether sales tax is chargeable only on services provided to importers/exporters or the same would also include un-receipted charges incurred on account of services provided by transporters, carpenters, labours etc.

The tax authorities analysed the issue in the light of clarifications issued from time to time. Sales tax on services provided by Custom House Agents (CHA) was levied through the Provincial Ordinance 2000. Since then, these rulings/clarifications were issued to the extent of chargeability of tax on CHA.

According to CBR's ruling of December 5, 2001, the value of supply is defined as the consideration received by a custom agent on account of services provided by him to his clients. It does not include consideration received on other accounts e.g. transportation charges, demurrage, wharfage, labour charges, custom duty and other taxes.

Moreover, CBRs's ruling of April 3, 2002 has specified that sales tax is payable on services rendered by custom agents with reference to customs' agents' functions/services as mentioned in the Custom Agents (Licensing) Rules notified vide SRO. 450(I)/2001 of June 18, 2001. In other words, the services rendered for storage of goods etc. not falling under the proviso of Customs Agents Rules will not attract the levy of sales tax from the customs agents.

The ruling resented by KCGA was issued on November 6, 2003, according to which, sales tax shall be charged on all services rendered by customs agents including un-receipted services provided by transporters, carpenters, labourers etc. This means that sales tax shall be charged at the rate of 15 percent by customs agents on the sum of total of services provided and billed to their clients.

KCAG argued that transporters, carpenters, labourers are not engaged by the custom agents, but they are “contractual employees” of their clients.

The customs agents do not bill any extra amount to their clients on account of transportation charges, demurrage, wharfage, labour charges etc. If their clients (importers/exporters) opt to pay the transporters, carpenters, labourers, etc through the customs agents, they (custom agents) simply pass on the bills received on account of aforementioned charges to their clients, without addition of any commission/charges.

Thus, the services on account of transportation, demurrage, wharfage, labour etc. are not included in the list of services brought under sales tax net through provincial legislation, the association added.

Sources said the CBR has two viewpoints on the issue raised by Karachi Customs Agents Group keeping in view different clarifications/rulings.

First, sales tax on services provided by customs agents was levied through the Provincial Ordinance-2000.

The term 'Taxable activity' is defined as: “Any activity which is carried on by any person, whether or not for a pecuniary profit, and involves in whole or in part, the supply of goods [or rendering of services on which sales tax has been levied under the respective ordinance and use of goods acquired for private purpose or for the manufacture of exempt goods without making supply] to any other person, whether for any consideration or otherwise, and includes any activity carried on in the form of a business, trade or manufacture.”

The CBR pointed out that since, the scope of services provided by customs agents to their clients (importers/exporters) also includes arranging for transportation, carpenters, labours for handling of cargo and they (agents) accordingly bill their clients for these charges, the sales tax shall be charged on all services rendered by customs agents including un-receipted services provided by transporters, carpenters and labourers etc.

The crux is that customs agents shall charge sales tax at the rate of 15 percent on the total of services provided and billed to their clients.

Sources added the second viewpoint of CBR gives an entirely different perception regarding GST on services provided by customs agents.

The CBR was of the view that the value of supply shall be the consideration received by a customs agent on account of services provided or rendered by him to his clients.

It should not include consideration received on other accounts eg transportation charges, demurrage, wharfage, labour charges, port handling charges, container charges, octroi, custom duty and other taxes, because all these charges are ordinarily reimbursed by the importer/exporter for whom the services are rendered.

Hence, such charges and various reimbursable expenses incurred by the customs agents should not be included while computing the sales tax on services provided by customs agents.

The CBR stated that this viewpoint is also in accordance with the practice in vogue in other value added tax (VAT) countries around the world, where service tax on custom house agents is not charged on reimbursable expenses. Therefore, it seems justified that the Board's clarification of November 6, 2003 should be withdrawn, tax authorities said.

However, there should be a binding on customs agents to issue separate commercial invoice/bill for the aforesaid charge, which will not be included in their sales tax invoice and to pay sales tax on account of service provided by them strictly in accordance with the minimum benchmark prescribed by the Board in its ruling No. 3/2003 of February 6, 2003, the CBR concluded.

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