Construction industry: There’s disparity among provinces on ST collection

SOHAIL SARFRAZ

ISLAMABAD: There is disparity among provinces on the collection of sales tax on construction industry as Sindh Revenue Board (SRB) has started collecting sales tax on construction services whereas Punjab Revenue Authority (PRA) and Federal Board of Revenue (FBR) have exempted construction sector from payment of sales tax.

Tax experts told Business Recorder here on Tuesday that the taxable schedule of the PRA has not mentioned applicability of the sales tax in the Second Schedule (Taxable Schedule) of the Punjab Sales Tax on Services Act 2012. The FBR has also exempted construction sector from payment of sales tax. However, the SRB is legally empowered to charge sales tax on construction services.

The issue is that the Sales Tax on Services is not collected by the FBR form the construction sector, under Federal Excise Act, 2005 or under any Provincial Ordinance, 2000.

At present, the situation is the same neither FBR nor either three provinces are collecting such tax from the construction sector, while the SRB has imposed this tax in Sindh which is a new form of collection for the construction industry.

They said that an immovable property is neither a service nor covered under the definition of goods as defined under section 2(12) of the Sales Tax Act, 1990. Further throughout the world no indirect tax is levied on such property.

In view of the 18th Amendment in the Constitution (specifically in relation to item 49 of the fourth Schedule thereof) read with Article 8 of the 7th NFC Award, notified under president of Pakistan’s Order No.05 of 2010 the sales tax on the Services is in the exclusive domain of the respective provinces.

The Sindh government exercising the constitutional jurisdiction in view of Article 142 © of the constitution, read with article 270AA(7) thereof, enacted and promulgated the Sindh Sales Tax on Services Act, 2011, which has taken effect from July 1, 2011 and has repealed the Sindh Sales Tax Ordinance 2000. Accordingly construction services as specified under item heading No.9324.0000 and services provided or rendered by the persons engaged in contractual execution of work as specified under item heading No.9809.0000 of the Second Schedule to the Act ibid, being taxable services are liable to Sales Tax @ 16% since 01.07.2011 whereas the Services provided by the contractors of Building etc as specified under item Heading No.9814.2000 of the said Schedule have been made liable to sales tax from November 1, 2011.

The payment of sales tax is required to be made in accordance with the procedure as laid down under   the Sindh Sales Tax on Services Rules, 2011.

The SRB has started collecting Sales Tax on Services from July 1, 2011, whereas, no Sales Tax is levied on Construction Services in any of the provinces/area.

It is added that for the purpose of modernization, balancing and replacement of machinery used in housing and construction industry the Banks and DFIs are not extending the required facilities and the construction industry is facing inability to generate finances and credit line for its projects, this also is another big knocking factor for the sobbing construction industry.

Experts said that the prevailing un-certainty surrounding the economy, un-toward law and order situation, environmental retrenchment etc. have already discouraged the investment in Construction field and accordingly Construction Industry is facing worst ever slump and non-withdrawal of sales tax would put the construction Industry of Sindh into a black hole.

The various taxation elements on construction industry are already at higher level like rate of withholding income tax is 6% whereas in the business of supply/trading it is 3.5% Stamp duty is charged by the Board of Revenue Sindh @ 0.30% , besides professional Tax is also being paid by the construction industry.  Pakistan Engineering Council is also collecting hefty license fee from the constructors.

The payments of billion of rupees are stuck-up and outstanding against various departments of Sindh government, District Government etc due to non-availability of funds, although projects have been completed by the constructors.

On one side, the authorities are reluctant in providing any facility or incentive to the Construction Industry, whereas on the other hand levy of new tax would result in price hike in Sindh Province, thereby blocking the building and construction productivity in Sindh, ultimately resulting is either closure of business or shifting of the same outside Sindh Province.

Experts added that the applicability of sales tax on construction services in Sindh Province only would adversely reflect on socio-economic productivity of construction industry in Sindh province. The concerned authorities should withdraw the said levy of sales tax on Construction Services in Sindh Province, as specified under item Heading Nos. 9814.2000, 9809.0000 and 9824.0000 of the Second Schedule to the Sindh Sales Tax on Services Act, 2011.