+92 300 9273394 info@ahafeez.com
Abdul Hafeez & Co. Chartered Accountants

Home › Services

Tax

Sales Tax on Services

Sales tax on services is not one regime. Each of the four provinces administers its own through its own revenue authority, and this practice advises on all four. Taxable services in the Islamabad Capital Territory fall under a separate federal regime. Businesses operating across jurisdictions may therefore need to deal with more than one authority.

  • Service providers
  • Businesses with a services arm
  • Companies operating in more than one province
  • Contractors and consultants
  • Restaurants and hospitality

What we are usually called about

The questions this work arrives with

None of these is unusual and none of them is a failing. They are what happens when a business grows faster than the records, the systems and the filings that describe it.

Four provinces, four regimes

Each of the four provinces administers sales tax on services within its own borders, under its own law and its own authority. A business supplying services in more than one can find it holds more than one registration, files more than one return, and answers to more than one authority about the same contract.

Where a service is taxed

Where a service is supplied, where it is received and where the recipient is established can each point at a different province. That question is settled from the contract and the facts, and settled separately for each province with an interest in it.

Contracts that contain both

A contract that supplies equipment and installs it contains goods and services. Whether it is split, and how the invoice presents that split, decides which authority the tax belongs to.

Collection by the customer

Provincial regimes commonly place part of the collection obligation on the recipient of a service. Whether that applies to a given contract, and how each side records it, is better settled before the first invoice than after the first reconciliation.

More than one registration

Separate registrations mean separate returns and separate correspondence, each with its own record-keeping expectations and its own file to keep.

Input tax across the line

Tax borne on one side of the goods and services line and claimed on the other is among the more common reconciliation problems, and it is easier to prevent than to unwind.

How the work runs

What an engagement looks like

Scope and fees are agreed in advance and in writing, before any of this starts. Where a step turns out not to be needed, it is dropped rather than billed.

  1. 01

    Position review

    Establishing what services are supplied, in and into which provinces, and what registrations are already held. The position in each province is checked against that province's law as it currently stands rather than from a list kept on a website — including this one.

  2. 02

    Contract and invoice review

    Reading the contracts and the invoices actually issued, because the treatment follows what was supplied rather than what was intended.

  3. 03

    Written position

    Where the classification or the province is uncertain, a written analysis of the options and the basis for the one recommended.

  4. 04

    Filing and compliance

    Preparing or reviewing periodic returns for each registration the business holds.

  5. 05

    Representation

    Replying to notices and dealing with whichever provincial authority holds the file.

Scope

What an engagement can cover

A list of what the work can include, not a package. What is actually needed is settled after the first conversation and written into the engagement letter.

  • Registration support in any of the four provincial regimes
  • Review of contracts and invoicing for services supplied
  • Preparation or review of periodic returns for each registration
  • Analysis of composite arrangements containing both goods and services
  • Reconciliation of input tax across the goods and services line
  • Correspondence, notices and representation

In practice

When businesses actually call

Most of this work starts on a particular day, for a particular reason. If one of these is roughly where you are, it is usually cheaper to look at it before the position hardens than afterwards.

A first contract in a second province

Work won outside the province the business is registered in, and a question about whether that creates a registration, a return and a file somewhere new.

A contract that bundles equipment with services

Supply with installation, a licence with configuration, or goods delivered under an agreement that also carries a service. How the contract is written and how the invoice is raised usually decide which authority the tax belongs to.

A customer proposing to withhold

A recipient saying it intends to hold back part of the tax on a services invoice. Whether that is right for this contract, and how each side records it, is better settled before the first invoice than after the first reconciliation.

A letter from an authority you may not be registered with

Correspondence from a provincial authority about services it considers were supplied inside its own borders. It arrives whether or not the business agrees that they were.

Two authorities interested in one contract

Where a service was supplied, where it was received and where the recipient is established can each point somewhere different. The position is settled from the contract and the facts, and settled separately for each authority with an interest in it.

A services arm growing inside a goods business

A manufacturer or distributor that has begun charging separately for installation, maintenance or training, and now has obligations on both sides of the federal and provincial line.

Federal or provincial

Goods or services — the line between the two regimes

Sales tax on goods is a federal matter, administered by the Federal Board of Revenue. Sales tax on services is not: each province administers its own services regime, under its own law and its own authority. The practical consequence is that a transaction has to sit on one side of that line, and both sides have an interest in where it sits.

Province is not the whole of it. Services supplied in the Islamabad Capital Territory are taxed under a separate federal ordinance dealing with services, administered by the Federal Board of Revenue. It is federal, but it is not the federal law that taxes goods, and a service does not become a good because the authority collecting the tax happens to be a federal one.

Composite arrangements are where it gets decided: equipment supplied with installation, software supplied with configuration, goods delivered under a contract that also carries a service. How the contract is written and how the invoice is raised usually settle the answer before anybody thinks to ask the question.

Being wrong in either direction has a cost — tax accounted for to one authority and then demanded by the other, or input tax claimed against the wrong regime. Because this practice advises on both sides of the line, the question can be looked at once rather than twice.

No rate, threshold or filing date is given here. Those change, and a position on a specific transaction needs the current law and the contract itself in front of it.

Who administers it

Which authority a services registration sits with

Each province runs its own services regime through its own revenue authority, with its own registration, its own return and its own file. A business supplying services in more than one can answer to more than one of them about the same contract.

  • Sindh — Sindh Revenue Board
  • Punjab — Punjab Revenue Authority
  • Khyber Pakhtunkhwa — Khyber Pakhtunkhwa Revenue Authority
  • Balochistan — Balochistan Revenue Authority

Islamabad is not one of them: services supplied in the Islamabad Capital Territory are charged federally, under the separate services ordinance described in the section above. Which of these applies to a particular contract is a question of that contract and of the law as it currently stands, and is not answered on this page.

Who this is for

Where this work usually comes from

Most of this work arrives from one of two sectors. Neither is a requirement — the sectors are where the practice already knows the vocabulary, not a list of who it will act for.

Retail

Chains running an ERP and a point of sale, where stock, margin and every invoice are now reported in real time.

Both are set out in full on the sectors page — what each one is usually called about, and what the practice does across the two.

Alongside this

One practice handles all of it, so nobody is coordinating between a systems consultant, a tax adviser and a bookkeeper.

Tax

Income Tax

Returns, notices, audits and appeals

Insights

A contract that contains both, or another province to register in?

You will get a plain answer on whether the practice can help, what it would involve, and what it would cost.

Talk to the practice WhatsApp us
Call WhatsApp