PSP may be brought into sales tax net under PSTO

The professional service providers (PSP) could be brought into the sales tax net under the Provincial Sales Tax Ordinances (PSTO). Sources told Business Recorder on Wednesday that the Federal Board of Revenue (FBR) has to consult provinces for levying sales tax on professional service providers through Provincial Sales Tax Ordinances.
The services sector might be brought into the sales tax net through provincial ordinances. Presently, services are under the domain of provinces and the federal government is not legally empowered to levy sales tax on services.
Through Provincial Sales Tax Ordinances, the provinces have authorised the federal government to collect sales tax on services. Sales Tax on services was levied through the promulgation of the Punjab Sales Tax Ordnance, 2000, the North-West Frontier Province Sales Tax Ordnance, 2000, the Sindh Sales Tax Ordnance, 2000, the Balochistan Sales Tax Ordnance, 2000 and the Islamabad Capital Territory (Tax on Services) Ordnance, 2001. The federal government can impose sales tax on goods, but it cannot levy sales tax on services.
At present, different categories of services are under the sales tax net. This includes services provided or rendered by hotels, marriage halls/lawns, clubs and caterer; advertisement on TV and Radio (with certain exclusions); services provided or rendered by authorised customs agents, ship chandlers; stevedores and courier services.
However, there is an exemption clause in the Provincial Sales Tax Ordinances which allows exemption to various service providers. This exemption clause needs to be removed for generating additional revenue.
Provincial Ordinances were promulgated authorising the FBR to collect tax on services as if it were sales tax under the Sales Tax Act, 1990. The tax on these services is being charged, collected and paid in the manner in which sales tax is being collected on taxable supplies under the Sales Tax Act, 1990. All the provisions of Sales Tax Act, 1990 are therefore, applicable on these services without any exception. As sales tax on Provincial services is charged under the Sales Tax Act, 1990, rate of tax on Provincial services was also brought in line with the provision of Sales Tax Act, 1990. Thus, sales tax on Provincial services was increased from 15 percent to 16 percent in the last budget.
The services were brought in the sales tax net through promulgation of Provincial Ordinance in 2000. The FBR collects sales tax on these services, on behalf of the provinces, under the Sales Tax Act, 1990. These services were earlier subjected to central excise duty (CED) under the Central Excise Act, 1944.
Under the arrangement, the federal government collects sales tax on behalf of provinces and the amount then goes into the divisible pool, which is then distributed among the provinces based on the population criteria.
Sources added that if the federal government intends to directly impose sales tax on professional service providers, there is a need to amend the Federal Legislative List of the Constitution of Pakistan. This would empower the federal government to collect and retain the amount collected from services.