07-14-2011, 05:44 PM
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by LapTop</i>
<br />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 The Federal Board of Revenue through a notification has withdrawn Federal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"></font 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 As earlier stated, the exemption given to computer software in Sixth Schedule has been withdrawn by Finance Act, 2011.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
<br />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"></font 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