The Federal Board of Revenue (FBR) has classified taxable and non-taxable transactions for software industry. Sales tax is not leviable on certain software industry transactions including downloading from internet; subscription charges, licence fee only for use, upgradation charges, maintenance charges, training fees, etc.
Sources told Business Recorder here on Saturday that the issue was recently taken up by the software industry after deletion of their item from Sixth schedule of the Sales Tax Act 1990 through Finance Bill 2011-12. The newly taxed industry in its presentation said that there are different sorts of transactions in software business. However, it is not necessary that every transaction comes under the ambit of sales.
There are certain transactions which are basically connected to use right for certain period without execution of sales and thus the customer did not get the right of ownership. Since the sales tax is leviable on sale of goods/services, hence in case of transaction where sale in terms of definition of supply does not occur no sales tax is applicable.
The FBR after reviewing all legal aspects issued instructions to the Chief Commissioners of all Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) to classify taxable and non-taxable transactions related to software industry, sources added.
According to FBR's instructions to the field formations, the Board will not charge sales tax on certain transactions of software industry including downloaded from internet; subscription charges, licensee fee only for usage, up-gradation charges, maintenance charges, training fees etc.
The Board's directive further said that after deletion of S.No 41 from Table 1 of Sixth Schedule to the Sales Tax Act, 1990, vide Finance Act, 2011, software have become chargeable to sales tax. The registered persons engaged in the business of software have approached FBR for issuance of clarification this regard.
The issue was examined in the FBR and it is submitted that supply of all kinds of software are chargeable to sales tax @ 16 percent from June 4, 2011. Some of these transactions which take place in software industry are listed below (this list is not exhaustive); Sale of CDs/DVDs with or without software; sales of any other hardware medium with or without software; sale of System software, which are usually essential to operate computers; download which is accompanied backup copy of the software on any hardware medium and sale of customised software with transfer of all rights to make amendment/charges in the software.
Other transactions are downloaded from internet (without accompanying backup on hardware medium) subscription charges, licensee fee only for usage, up-gradation charges, maintenance charges, training fees etc, are not liable to sales tax, FBR's instructions added.
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