Engineering Services Excluded from Reduced Withholding Rates

Contrary to the its claims of incentivising the construction industry and industries related to it, the Government excluded the Engineering sector from the relief of service tax in the Finance Bill 2020. The tax rate which was earlier at 3% has now been reinstated at 8%. As per experts this announcement is expected to directly impact major companies associated with this sector.

While speaking to Business Recorder, a major PBC member company gave their view and said that the this omission of engineering services from the reduced rate will result in very high incidence of tax specially for the corporate sector who are involved in providing engineering services to the Energy, Oil and Gas and Construction sectors. Even if an estimate is taken where the average profit margin of 10% on these service contracts(which would be an arduous target to achieve due to Covid19) the minimum tax of 8% on the turnover would result in an effective tax rate of 80% which is very high.

They further added that this proposed amendment would be detrimental for the engineering service sector specially in the current scenario of Covid-19 where it will be difficult for many companies to survive. Further, this announcement also goes against government’s own policy of boosting construction sector by promoting low cost housing because this will also result in increasing the cost of construction and also the cost of doing business for the customers who will be availing these services while taking part in construction activities as engineering services are an integral part of construction activities.

Several effected companies from the Engineering sector have reached out to the government directly and through different business platforms to revisit this decision so that this particular sector which is already suffering due to the impact of Covid19 can get some relief.