In Pakistan, the taxation of services is governed by the Sales Tax Act 1990, which was amended in 2019 to include the taxation of services provided or rendered in the country. The sales tax on services is also known as the Federal Excise Duty (FED) and is levied at a standard rate of 17%. In this article, we will discuss the taxation of services in Pakistan, including its definitions and examples.
Definition of Services
Services refer to the performance of any work, duties, or activities for a consideration, other than goods or money. In other words, services are intangible products that are provided in exchange for a fee or a consideration. Some examples of services include professional services, such as legal and accounting services, transportation services, telecommunications services, and entertainment services, such as cinema tickets and concert tickets.
Scope of Services
The scope of services that are taxable under the Sales Tax Act 1990 is quite broad. Any services that are provided or rendered in Pakistan, whether by a resident or a non-resident, are subject to sales tax. Some examples of taxable services include:
Professional Services: Professional services provided by accountants, lawyers, doctors, engineers, architects, and other professionals are taxable.
Telecommunication Services: Telecommunication services provided by mobile network operators, internet service providers, and other telecommunication companies are taxable.
Transportation Services: Transportation services provided by airlines, railways, and road transport companies are taxable.
Advertising Services: Advertising services provided by advertising agencies, media houses, and other advertising companies are taxable.
Financial Services: Financial services provided by banks, insurance companies, and other financial institutions are taxable.
Entertainment Services: Entertainment services provided by cinemas, theaters, and other entertainment venues are taxable.
Exemptions from Sales Tax on Services
Some services are exempt from sales tax in Pakistan. The following services are exempt from sales tax:
Health and Education Services: Services provided by hospitals, clinics, and educational institutions are exempt from sales tax.
Religious Services: Services provided by religious institutions and organizations are exempt from sales tax.
Charitable Services: Services provided by non-profit organizations that are registered with the Federal Board of Revenue (FBR) are exempt from sales tax.
Agricultural Services: Services related to agriculture, such as farming and livestock rearing, are exempt from sales tax.
Export Services: Services provided for the purpose of exporting goods are exempt from sales tax.
Sales Tax on Services – Calculation and Payment
The sales tax on services is levied at a standard rate of 17% in Pakistan. The person who is providing or rendering the taxable service is responsible for collecting and paying the sales tax to the government. The sales tax is collected on the gross amount of the consideration received for the provision of the service.
For example, if a lawyer provides legal services to a client and charges PKR 100,000 as a fee, the sales tax payable will be PKR 17,000 (17% of PKR 100,000).
The person providing the taxable service is required to register with the FBR and obtain a Sales Tax Registration Number (STRN). The registered person is also required to file a sales tax return with the FBR on a monthly basis, showing the details of the taxable services provided and the sales tax collected during the month. The sales tax collected is then paid to the FBR along with the monthly return.
In conclusion, the taxation of services in Pakistan is governed by the Sales Tax Act 1990, which was amended in 2019 to include the taxation of services provided or rendered in the country. The sales tax on services is levied at a standard rate of 17% and is collected on the gross amount.