Services sector: Share of taxes hovered at 3.4 to 5pc over the last few years: FBR report

ISLAMABAD: The share of sales tax collected from services sector was hovering around 3.4 percent to 5.0 percent during the last few years, revealed the Federal Board of Revenue (FBR) report on services sector issued on Thursday.

According to the report, within sales tax, eight main heads, namely travel by air, contractor, electrical energy (discos), importer/whole seller, independent power projects (IPPs), services on board, services provided by cold storage, services provided by telecommunication, and misc services contribute towards tax collection under domestic sales tax.

The share of taxes collected from services sector within sales tax (total) was hovering around 3.4 percent to 5.0 percent throughout the years from 2013-14 to 2018-19, it said. Within federal excise duty, five main heads, namely international travel by air, services provided by property developer, services NOS, Aviation Corporation on air ticket, and telecom.

Share of Services Sector in Sales Tax (Total) 38 services contributes towards tax collection under federal excise duty (FED).

International travel by air has been the top source of tax in services sector under FED.

The share of taxes collected from services sector within federal excise duty was hovering around 14.5 percent to 23.7 percent throughout the past years.

Income tax has been the top contributor in the tax collection over the years.

Within Income Tax Ordinance 2001, 11 main sections of withholding taxes are imposed on services sector namely under section (U/s) 152 (Technical Fee), U/s 153 (Services and Contracts), U/s 234 (Transport), U/s 236F (Advance Tax on Cable Operators and other Electronic media), U/s 236G (Advance Tax on Distributors/Whole Sellers), U/s 236H (Advance Tax on Sales to Retailers), U/s 236I (Advance Tax on Educational Institutions), U/s 236J (Advance Tax on Dealers/Commission Agents/Arhatis), U/s 236L (Advance Tax on purchaser of international air ticket), U/s 236U (Advance tax on insurance premium), and U/s 236V (Advance tax on minerals extraction).

Under the head of direct tax, services and contracts are the top-most contributors in last six years (2013-14 to 2018-19). According to the data of FY 2018-19, services sector is at the top contributor in income tax with 18.4 percent share in total direct taxes, followed by technical fee, transport services, etc.

The analysis shows that there are some considerable reasons due to which the estimated revenues cannot be collected and the sector output related to tax revenues always remains on the lower side.

The structural factors, such as uneducated ownerships, lack of capital, undocumented dealings and shipments do not allow the transport companies to be registered.

Most of them avoid sales tax collection by issuing flying invoices/vouchers/receipts to facilitate their customers. Moreover, the exempted supplies and imports should also be taken into consideration towards low revenues.

One of the main reasons could be that the companies that are not paying taxes get registered initially with the FBR and the PRAL, but due to economic instability, they quit business.

In addition to that, there are many unregistered companies in the Pakistan Revenue Automation Limited (the source of data for income, sales and federal excise for FBR, the FBR added.

Copyright Business Recorder, 2021