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The requirement for withholding of sales tax

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The requirement for withholding of sales tax

Interview with Mr Ashfaq Yousuf Tola — President, TOLA ASSOCIATES

Profile:

Professional Accomplishments

Memberships:

  • Fellow Member of Institute of Chartered Accountants of Pakistan
  • Fellow Member of the Institute of Cost & Management Accountants of Pakistan
  • Life Member of Karachi Press Club
  • Life Member of SAARC Chamber of Commerce and Industry
  • Member of Karachi Tax Bar Association.

Key Achievements:

  • Presentation to IMF on Single Stage Sales Tax in December 2015
  • Visited Turkey as an official of Government of Pakistan to study Turkish Tax System and authored a report on Turkish Taxation System
  • Knowledge of more than 40 Jurisdictions around the Globe and co-authored report with Dr. Hafeez Pasha on Sindh Provincial Taxation System
  • International Speaker on Pakistan Economy and Non-Resident Taxation in 2018 and 2019 at Dubai, Abu Dhabi and Jeddah
  • Distinction of passing CA Examinations – Intermediate & Final (both groups together in 1st attempt) as trainee of PWC A. F. Ferguson & Co., Chartered Accountants

Areas of Expertise:

  • Tax Planning and Advisory
  • Business Advisory Services
  • International Mergers and Acquisitions
  • Corporate Finance and Investment Advisory
  • Due diligence and Forensic audits
  • Financial Product Designing and Launching
  • Public Listings and Corporate Affairs

Federal Board of Revenue, Government of Pakistan:

  • Chairman Anomaly Committee (2019)
  • Member Tax Reforms Implementation Commission (2016 to date)
  • Member Tax Reforms Commission (2015)
  • Member Tax Advisory Council (2014-15)
  • Member Taxation Reforms Co-ordination Group (2011-13)
  • Member Revenue Advisory Council (2011)

Institute of Chartered Accountants of Pakistan:

  • President (Present)
  • Member Overseas Coordination Committee (2018)
  • Member Regional Committee – (Southern Region) (1993-96)
  • Secretary of Regional Committee (Southern Region) (1996)
  • Member Education and Training Committee (1994-95 95-96 96-97)
  • Member Technical Services Committee (1992-93 93-94)
  • Chairman Chartered Accountant Students’ Association. (1993)

Institute of Cost & Management Accountants of Pakistan:

  • Secretary of Karachi Branch Council (KBC) (1995 and 1996)
  • Elected Member KBC and Convener Seminar and Publication Committees (1992-96)
  • Member Technical Committee
  • Member Research Committee

Karachi Club

  • President (2012 and 2013; and 2016 and 2017)
  • Honorary Secretary (2008)
  • Member Managing Committee (2003, 2004)

Professional Experience

  • President Tola Associates (April 2017 to date)
  • Senior Partner Naveed Zafar Ashfaq Jaffery & Co, Chartered Accountants, a member firm of Prime Global International (2012 to present)
  • Partner Nasir Javaid Maqsood Imran Ashfaq, Chartered Accountants (2011 to March 2012)
  • Principal Strategic Officer in Stallion Textiles (Private) Limited (2008 to 2010)
  • Chief Executive Officer in Fincon (2000 to 2007)

PAKISTAN & GULF ECONOMIST had an exclusive conversation with Mr Ashfaq Yousuf Tola regarding taxation. Excerpts of the conversation are as follows:

Recipients of services or goods mentioned in the Eleventh Schedule of the STA are required to withhold sales tax at the rate specified in the schedule, other than the services liable to pay sales tax under a Provincial enactment (who shall withhold as per withholding sales tax rules of respective provincial authorities). However, the only exception to the above is for an operator of the online market place providing a platform for sellers and purchasers of the goods. Such online operators are required to withhold sales tax at the rate of 1% of gross value of supplies in case of suppliers not appearing in active taxpayers list.

Withholding agents having a Free Tax Number (FTN) /NTN/SNTN shall deduct the amount of sales tax as per the rates mentioned in the Second Schedule of the Sindh Sales Tax on Services Act, 2011 against the taxable services provided/rendered to him. Not all services shall be taxed in this manner, some would require the use of the fraction formula, who shall deduct and withhold the entire amount of Sindh Sales tax at the time of payment, such services are as follows:

  1. Services of advertisement;
  2. Auctioneers;
  3. Renting of immovable property;
  4. Inter-city transportation/carriage of goods by road, except by services of inter-city transportation and carriage of goods through truck addas/through bus/wagon stands.

Withholding of 1/5th of the total sales tax shall be applied on all except for (a) non-filers, and (b) those mentioned in Point 1 above. If the invoice does not contain the amount of sales tax, then deduction shall be on basis of the rate applicable to the services provided or rendered to him.

Tax shall be levied and charged in the same manner and at the same time as specified in the STA and Table 1 of the Schedule under the Islamabad Capital Territory (Tax on Services) Ordinance, 2001 which contains the list of taxable services. Moreover Table 2 shall contain all the rates against the services mentioned in Table 1. Furthermore, explicitly mentioned in this Ordinance is that export of services shall be taxed at 0%, and no tax shall be levied on regulatory/ licensing services rendered /provided by an organization established under by or under the Federal statute.

For the province of Punjab the Punjab Sales Tax on Services (Withholding) Rules 2015 shall be binding on the withholding agent for all services other than:

  1. Telecommunication;
  2. Banking;
  3. Courier;
  4. Insurance except if insurance service is provided from outside the province to a withholding agent for risk located in the province or related to it;
  5. Services provided by the Companies which are active taxpayers, other than advertisement services. Where advertisement services are provided by a person based in Pakistan or abroad, the whole amount of sales tax shown in the tax invoice, issued by a registered person, shall be withheld. If the amount is not mentioned, then the applicable rate on the gross value of taxable service shall be computed. Services by unregistered persons (except advertisement services from unregistered persons) shall be worked out on the basis of gross value of taxable services as per the rates applicable according to their services.

Irrespective of the locations of the head office or business premises or jurisdiction, if anyone meets the statutory registration requirement, they shall be required to have themselves registered and the Khyber Pakhtunkhwa Sales Tax on Services (Withholding) Regulation, 2020 shall be binding on the withholding agents. Under the said regulation, the following service providers shall withhold the entire amount of taxes raised in the bill:

  1. Advertisement services;
  2. Services provided by persons who are not registered with KPRA, or even if registered, are inactive / non-filers under KPRA;
  3. Services provided to the Federal / Provincial Governments, public sector institutions, entities and projects.
  4. Services provided in KPK by persons outside the province and are not registered with KPRA; and
  5. Services liable to tax under the Act less than the standard rate of 15% (reduced rate).

The Sales Tax (Tax on Services) Act, 2001 shall be enforceable in AJ&K. Where a taxable service originates from outside Pakistan but is received/terminated in AJ&K, the recipient of such service shall be liable to pay tax to the Government and shall also be required to have themselves registered.