'We are not service providers': builders, developers concerned at levy of sales tax

Builders and developers have expressed their grave concerns over the imposition of sales tax on services, saying that the Sindh Revenue Board (SRB) has wrongly classified them as service providers. In a letter, Association of Builders and Developers of Pakistan (ABAD) requested the Sindh government to withdraw sales tax on services from builders and developers.
It said the builders and developers have wrongly been classified as service providers by SRB. It also stressed the need for bridging the gap between the board's perception of the nature of business that the members of ABAD are engaged in and the extent to which their business is at all taxable under the Sindh Sales Tax on services Act 2011.
Mohsin Sheikhani, chairman ABAD told Business Recorder that none of ABAD members has either obtained registration under the Federal Excise Act (FEA) 2005 or charged and collected any FED from the purchases of plots and flats during the last three years.
According to him, the sale of property results in the levy of indirect taxes like Capital Value Tax (CVT), stamp duty, registration fee and Capital Gain Tax (CGT) under the Income Tax Ordinance, 2001 payable by the purchaser and by subsequent purchaser's as many times as the property changes hand. This is not like services that are consumed one rendered, he maintained.
Moreover, Sheikhani added, the element of cost of development and other services represent comparatively a low percentage of the total cost of a flat or a plot of land finally sold and transferred. Following the aforesaid difficulties, the developers and promoters remained exempted from sales tax on service from July 2008 to June 2011.
He said the members of ABAD are not service providers but immovable property provider, which is not covered by the sale of good, adding that property in law has a permanent value as it does not vanish by its utilisation, whereas service has a temporary value and vanishes or sheds its value after its use.
Meanwhile, Saleem Kassim Patel, south region chairman ABAD, said the housing industry is already heavily taxed with main cost drivers such as cement and steel which are subjected to 16 percent indirect tax. He said the countries that charge services tax from construction industry, also facilitate that industry through different incentives. However, the situation is adverse in Pakistan. According to him, Sindh province has put such heavy burden only on construction industry, which supports the growth of more than 70 allied industries.
Saleem said if the industry, which is already paying 7 per cent of the value of the property on account of stamp duty, CVT, transfer and others, pass this sales tax on services to purchasers, it would be a serious blow to an already ailing segment of society.
Furthermore, he said Sindh Minister Syed Sardar Ahmad after having a meeting with ABAD representatives had also recommended the SRB to ensure that the sales tax on services is not levied on builders, promoters and construction companies. However, the provincial revenue body is keen to collect the same from construction industry.
On the other hand, Fateh Muhammad Sheikh, commissioner, Sindh Revenue Board (SRB) dispelled the impression that the imposition of said levy on builders and developers is unjustified, saying that it is already being charged in other developing countries.
According to him, India has imposed a 13 percent services tax on the builders and developers. Moreover, he said, the representatives of ABAD have given a wrong impression that the Federal Board of Revenue (FBR) has excluded developers and builders from the said levy and withdrawn the same, accordingly.
He said the developers and the builders have neither been driven out from the tax ambit nor has the sales tax on services been withdrawn by the FBR, adding that the account of sales tax on services has been transferred to provincial revenue body after the 18th Amendment in Constitution. Moreover, he said that as a member of World Custom Organisation (WCO), the relevant revenue body of Pakistan is empowered through chapter 18 of WCO rules to collect tax on services from builders and developers.
Fateh Ali said the department had offered the builders and developers to pay Rs 50 per sq/ft for apartments and Rs 100 per sq/yard for houses or deposit 16 per cent general sales tax on predefined services quantum of their project, which is not more than 4 per cent of whole project value.
However, the representatives of ABAD instead of giving positive response to SRB proposals have expressed reluctance to discharge their tax liability. He ruled out the possibility of withdrawal of the said levy arguing that although there is not enough room to swing, the department after negotiation could still find the option to facilitate construction sector.