Collection of sales tax on services: Centre, provinces agree on ‘place of supply rules’

ISLAMABAD: The federation and provinces were unanimous on the common rules in place of supply (Place of Supply Rules) resolving a major dispute between the Federal Board of Revenue (FBR) and the provincial revenue authorities/ boards on the collection of sales tax on services.

Sources told Business Recorder here on Tuesday that the decision on the agreement of common Place of Supply Rules took place during the meeting of the Executive Committee of the National Tax Council (NTC), chaired by SAPM on Finance Tariq Bajwa at the Ministry of Finance.

The meeting was held on Tuesday and attended by secretary Ministry of Finance, FBR officials, and senior representatives of the provincial revenue authorities/ boards.

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The framework on the common rules in place of supply (Place of Supply Rules) was finalised and unanimously agreed upon between the provinces and the FBR.

Provinces have already presented the joint report on the common Place of Supply Rules before the provinces.

The NTC had endorsed the joint report of provinces on the common Place of Supply Rules.

Subsequently, all provinces will notify their respective Place of Supply Rules in the light of uniform agreed rules.

The FBR would also be required to issue Place of Supply Rules for the territorial jurisdiction of Islamabad Capital Territory.

Sources said that a key aspect in harmonising Pakistan’s sales tax was the need to distinguish the taxing powers of the federal government vis-à-vis that of the provinces, and further between the provinces, themselves.

Under the Constitution, the sales tax base is divided between the supply of goods (taxable by the federal government) and supply of services (taxable by the provinces), and hence, it is very important to define as unambiguously as possible the definition of what constitutes, a good, and what constitutes, a service.

Moreover, in the case of supply of services, as provinces have the right to tax the supply of services occurring within their province, when services are provided across different provinces, clear “Place of Supply Rules” are needed to give the taxing power to the relevant province.

Sources added the harmonisation also required data sharing, clearing house to allow cross-agency tax credits, common return and rules.

Further, harmonisation requires the smooth functioning of the NTC, which has been setup to aid in such efforts.

Copyright Business Recorder, 2023