Sindh proposed to exempt sales tax on export of services

KARACHI: Sindh Revenue Board (SRB) has been proposed to exempt sales tax on export of services.

Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021 presented to SRB, said that as per the Fifth Schedule to the Sales Tax Act 1990, exports made by a registered person are zero-rated.

“Presently, there is no concept of zero-rating in Provincial Sales Tax Acts,” it said.

Resultantly, the companies providing services to foreign companies and bringing foreign exchange in Pakistan need to pay sales tax from their own account.

The OICCI recommended that a separate schedule should be inserted in Provincial Sales Taxes Act for zero rating. “All services provided to foreign companies outside Pakistan which result in inflow of foreign exchange and export of all taxable services should be exempt from Sind Sales Tax.”

Giving rationale to the proposals, the OICCI said that this will result in harmonization of tax laws in Pakistan and would ensure convenient compliance with tax laws through uniform systems across the country and would also contribute towards the economic development of the Country.

The OICCI highlighted another issue that all pharmaceutical products are exempt from Sales Tax.

Consequently any sales tax paid by pharmaceutical industry on goods or services purchased, can neither be passed on to the consumer nor can be claimed as input, and has to be absorbed by the manufacturers in their costs.

It is resulting in increasing the cost of doing business and is also against the philosophy of sales tax which is supposed to be borne by the consumer.
Therefore, it is recommended that services received by pharmaceutical industry should be zero rated.

Since pharmaceuticals prices are controlled, sales tax paid on inputs can neither be added to the selling price nor separately charged.

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