The Federal Board of Revenue (FBR) and provincial revenue authorities in Pakistan have announced the implementation of uniform ‘Place of Provision of Services Rules-2023’ from May 1, 2023, in an effort to harmonize sales tax on services across the country.
The new rules are aimed at simplifying tax compliance and facilitating taxpayers in different jurisdictions in Pakistan.
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The FBR and provincial revenue authorities have issued their respective rules to explain the place of provision of services relating to advertising, advertising agents, insurance and reinsurance, insurance agents and insurance brokers, franchise services, intellectual property and licensing services, and the transportation of goods.
The issuance of uniform rules is a significant milestone towards GST harmonization across the country. A comparison of the rules issued by Sindh, Punjab, Khyber Pakhtunkhwa, and Balochistan revealed uniformity in the application of sales tax on specified services.
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If a service transaction is determined to be provided in more than one province in accordance with these rules, the service provider can claim an ‘attributable’ input tax in the same proportion as is declared in relation to the taxable value of the service, subject to other restrictions and limitations provided in the Act and the rules made thereunder.
Under the uniform rules, the transmission of electricity will be treated as a service from July 1, 2023, for which the Sales Tax Act will be amended through the next Finance Bill. The exclusion of electric power transmission from the list of goods by the FBR, for which the Sales Tax Act is required to be amended through the Finance Bill, will take effect from July 1, 2023.
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The provincial rules 2023 have specified that in the case of electric power transmission lines services, the place of provision of service shall be the place of origin and the destination of transmission, ensuring that the amount of tax involved is shared equally by the provinces in which the transmission originated and in which it terminated.
If the electric power transmission lines service originates and terminates in one and the same province, the place of provision of service shall be the province itself. In cases where the electric power transmission lines service originates in a province where the tax is not levied but terminates in a province or area where such tax is levied, the place of provision of service shall be the province where the transmission lines terminate.
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Where the rate of tax leviable in the province in which the transmission lines service originated is different from the rate of tax leviable in the province in which such transmission lines service terminated, the invoice shall clearly indicate the amount of tax payable to the respective provinces as determined on the basis of the respective rate(s) of tax on 50 per cent of the value of that inter-province transmission lines service.
In conclusion, the harmonization of sales tax on services across the country is a positive step towards simplifying tax compliance and facilitating taxpayers in different jurisdictions in Pakistan. The uniformity in the application of sales tax on specified services is a significant milestone towards GST harmonization across the country. The implementation of these rules is expected to contribute to the growth of the economy by providing a conducive environment for businesses to operate.
