03 October 2023 Pakistan | Punjab modifies Sales Tax on Services Act 2012, changing descriptions, rates and more
The Government of Punjab recently modified the Second Schedule of the Punjab Sales Tax on Services Act 2012 (the PSTS Act) by issuing SRO No. SO (TAX) 1-2/97(Pt.XIV) dated 12 September 2023 (the Notification) under section 5 of the PSTS Act. The Government of Punjab has the authority to modify the description of taxable services or alter the tax rate for services under the PSTS Act via an official Gazette notification (per Section 5(1) of the PSTS Act). This notification shall be effective from the date specified in the notification, which must not be prior to the date on which the notification is published in the official Gazette (per Section 5(2) of the PSTS Act). The Notification dated 12 September 2023 states that the amendments will be applicable "with immediate effect" and was published in the Official Gazette on 13 September 2023. Based on Section 5(2) of the PSTS Act, the Notification should take effect from the date of its publication, which is 13 September 2023.
The amendment to the description of the taxable service in serial no. 22 will subject streaming/OTT services to Punjab sales tax at 5%, without input-tax adjustment.
The federation and provinces had been disputing the sales tax levy on manufacturing on a toll or job basis (as enumerated above). Omission of manufacturing services from the list of taxable categories of PSTS Act seems to indicate that this dispute has been resolved from 13 September 2023 onward. The Act requires service recipients to pay Punjab Sales Tax (PST) at applicable rates while receiving services from nonresidents in Punjab (commonly referred as "reverse charge mechanism"). The Punjab Revenue Authority (PRA) specified (see notification No. PRA.32-24/2022/561 dated 05 July 2023) the State Bank of Pakistan (SBP) as "Collecting Agent" for information technology (IT) and Advertisement services (Entry Nos. 12 and 22 of the Second Schedule). The notification dated 05 July 2023 required the SBP to collect PST, using any means of transfer, from those remitting payments to nonresident persons providing IT or Advertisement activities in Punjab through websites. Subsequently, the PRA extended the scope of this authority by substituting expression "State Bank of Pakistan" with "State Bank of Pakistan/banking companies/financial institutions/non-banking financial institutions" (see Notification No. PRA.32-24/2022/354 dated 19 September 2023). In this respect, we have observed that PRA has issued "intimation letters" to banking companies requiring them to comply with the aforementioned notifications. However, these notifications are still not available on PRA website. The PRA has not yet prescribed any special procedure for collection, deposit and declaration of PST collected by State Bank of Pakistan/banking companies/financial institutions/non-banking financial institutions. Further, the service recipients are not absolved from depositing PST under reverse charge mechanisms while receiving IT-related or Advertisement service from nonresident persons. Note that this Tax Alert is general in nature and is not a substitute for detailed research or the exercise of professional judgment. Accordingly, no decision on any issue should be taken without seeking specific professional advice and further consideration.
Document ID: 2023-1638 | |||||||||||||||||||||||||||||||||||||
