Karachi, July 26, 2024 – The Sindh government has announced a significant exemption of sales tax on services rendered by construction companies, subject to specific conditions, in a move aimed at stimulating the construction sector and facilitating growth.
According to the Sindh Revenue Board (SRB), the standard rate of sales tax on construction services is 15% for tax year 2024-25. However, the provincial government has introduced reduced rates and exemptions to benefit the sector under certain conditions.
The Sindh government has granted exemptions on sales tax for construction services in the following cases:
1. Small-scale Construction Work: Construction work undertaken by individuals or entities whose annual turnover does not exceed 4 million rupees in a financial year is exempt from sales tax.
2. Special Zones and Diplomatic Buildings: Construction and development work related to Export Processing Zones (EPZ), Special Economic Zones (SEZ), and diplomatic and consular buildings are exempt from sales tax.
3. Private Residential Houses: The construction of independent private residential houses, other than residential units covered by tariff headings 9807.0000 or 9814.3000, with a total covered area not exceeding 10,000 square feet, is also exempt.
4. Low-Cost Housing Projects: Construction services related to low-cost affordable public housing projects sponsored and funded by the Federal Government or the Government of Sindh are exempt from sales tax. This exemption applies provided the houses are built on plots up to 125 square yards or apartments/flats with a covered area not exceeding 900 square feet.
Additionally, the SRB outlined that construction services taxed at the standard rate of 15% require the registered person to electronically submit an election or option in Form “C” by the prescribed due date to opt for this rate under the Special Procedure prescribed under Rule 42B of the Sindh Sales Tax on Services Rules, 2011.
The Sindh government has also introduced a reduced sales tax rate of 8% on construction services, but this comes with the condition that input tax credit/adjustment will not be available.
Furthermore, a reduced rate of 5% has been granted under the following conditions:
1. Government Civil Works: Construction services related to government civil works where the expenditure is paid from the expenditure budget of the Federal Government, Provincial Government, Local Government, or Cantonment Board are taxed at a reduced rate of 5%.
2. No Input Tax Credit: Input tax credit/adjustment is not available under this reduced rate.
This move by the Sindh government aims to encourage growth in the construction sector by easing the tax burden on specific construction activities and projects, particularly those that contribute to affordable housing and public infrastructure development. Stakeholders in the construction industry are expected to benefit significantly from these exemptions and reduced rates, potentially leading to increased construction activities and economic development in the region.