Withholding sales tax should be exempted on services rendered to registered persons

Withholding sales tax should be exempted on services rendered to registered persons

KARACHI: Sindh Revenue Board (SRB) has been proposed to exempt sales tax withholding in case a registered person renders services to another registered person.

Withholding of sales tax from registered sales tax persons with Sindh Revenue Board (SRB), does not provide any benefit and only creates hardships for genuine taxpayers of reconciliations and delay in adjustments, said Overseas Investors Chamber of Commerce and Industry (OICCI) in its budget proposals for 2020/2021 submitted to the SRB.

It further said that similar to federal sales tax law, exemption should be given if payment being made to sales tax registered person against withholding sales tax.

Withholding tax rules are applicable on active taxpayers also.

The OICCI recommended:

i. Withholding should be exempted from deduction of Sales Tax at applicable rate against the payments to the Sales tax registered persons with SRB, in line with Federal Laws.

ii. The rate of withholding sales tax against the invoices of unregistered persons should be reduced to 5% in line with the FBR’s Withholding Sales Tax regime as applicable under SRO.660 (I)/2007.

iii. Withholding tax rules should not applicable on active taxpayers.

Giving rationale to the proposals, the OICCI said that the withholding agents are unnecessarily burdened with deduction of sales tax which is not claimable as input tax and is thus resulting in increasing their cost of doing business.

Similar matters have already been decided by the courts in case of sales tax withholding rules of FBR and PRA. The ultimate objective of the taxpayer is that indirect tax should not increase its cost of doing business. Moreover these enforcement measures have negative bearing on the regulated sector only.

The purpose of withholding tax deduction is to ensure that non-active & nonregistered taxpayers can be detected. Compliance burden of businesses can be reduced for businesses by exemption deduction at source for active taxpayers.

PRA allows similar provision [Sindh Sale Tax Special Procedures (Withholding Tax) Rules, 2014 read with notification SRB-3-4/14/2014].

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