GST harmonization: FBR, provinces notify uniform ‘Place of Provision of Services Rules-2023’

ISLAMABAD: In a major breakthrough between the Federation and provinces on harmonisation of sales tax, the Federal Board of Revenue (FBR) and all provinces Saturday notified uniform “Place of Provision of Services Rules-2023”.

The rules of the federal government and provinces will be applicable from May 1, 2023 in relation to determination of the place of provision of taxable services. However, rules pertaining to the Electric Power Transmission Lines Services would be applicable from July 1, 2023.

In this regard, the FBR and the provincial revenue authorities and boards have finally issued their respective rules to explain place of provision of services relating to the advertisement, advertising agents, insurance and reinsurance, insurance agents and insurance brokers, franchise services, intellectual property and licensing services and place of provision of services relating to transportation of goods.

The FBR has issued SRO 494(I)/2023 to notify Islamabad Capital Territory Place of Provision of Services Rules-2023.

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The Sindh Revenue Board (SRB) has issued Sindh Place of Provision of Services Rules-2023.

The Punjab Revenue Authority (PRA) has issued Punjab Place of Provision of Services Rules, 2023.

The Khyber-Pakhtunkhwa Revenue Authority (KPRA) has issued Khyber-Pakhtunkhwa Place of Provision of Services Rules, 2023.

The Balochistan Revenue Authority (BRA) has notified Balochistan Place of Provision of Services Rules, 2023.

The Place of Provision of Service Rules issued by the FBR, as well as, provinces is a major milestone towards GST harmonisation across the country.

A comparison of Sindh Place of Provision of Services Rules-2023, Punjab Place of Provision of Services Rules, 2023, Khyber Pakhtunkhwa Place of Provision of Services Rules, 2023 and Balochistan Place of Provision of Services Rules, 2023 revealed uniformity in the application of sales tax on specified services.

In case a service transaction is determined to be provided in more than one province in accordance with these rules, the service provider shall claim an ‘attributable’ input tax in the same proportion as is declared in relation to taxable value of the service, subject to other restrictions and limitation as provided in the Act and the rules made there under.

Under the uniform rules, the transmission of electricity would be treated as a service from July 1, 2023, for which the Sales Tax Act would be amended through the next Finance Bill. The exclusion of electric power transmission from the list of goods by the FBR, for which the Sales Tax Act is required to be amended through the Finance Bill, will take effect from 1st July 2023.

Provincial Rules 2023 revealed that in case of electric power transmission lines services, the place of provision of service shall be the place of the origin and the destination of transmission in a manner that the amount of tax involved is shared equally by the provinces in which the transmission originated and in which such transmission terminated:

Provided that where the electric power transmission lines service originates and terminates in one and the same province the place of provision of service shall be the province itself.

Provided further that where the electric power transmission lines service originates in a province where the tax is levied but terminates in a province or area where such tax is not levied, the place of provision of service shall be the province where the transmission originates, the rules added.

Where the electric power transmission lines service originates in a province where the tax is not levied but terminates in a province or area where such tax is levied, the place of provision of service shall be the province where the transmission lines terminates.

Where the rate of tax leviable in the province in which the transmission lines service originated is different than the rate of tax leviable in the province in which such transmission lines service terminated, the invoice shall clearly indicate the amount of tax payable to the respective provinces as determined on the basis of the respective rate(s) of tax on 50 per cent of the value of that inter-province transmission lines service.

Copyright Business Recorder, 2023