PUNJAB
BUDGET
BRIEFING
2016
Ernst & Young Ford Rhodes Sidat Hyder
Chartered Accountants
PUNJAB BUDGET
BRIEFING 2016
This Memorandum is correct to the best of our
knowledge and belief at the time of publication. It is
intended to provide only a general outline of the
subjects covered. It should neither be regarded as
comprehensive nor sufficient for making decisions,
nor should it be used in place of professional advice.
The Firm and Ernst & Young do not accept any
responsibility for any loss arising from any action
taken or not taken by anyone using this publication.
This Memorandum may be accessed on our website
http://www.ey.com/pk
Ernst & Young Ford Rhodes Sidat Hyder
Budget Briefing
This Memorandum has been prepared as a general
guide for the benefit of our clients and is available to
other interested persons upon request. This should not
be published in any manner without the Firm’s consent.
This is not an exhaustive treatise as it sets out
interpretation of only the significant amendments
proposed by the Punjab Finance Bill, 2016 (the Bill) in
the Punjab Sales Tax on Services Act, 2012 (the Act),
The Punjab Infrastructure Development Cess Act, 2015
and Tax on Imported Motor Cars in a concise form
sufficient enough to amplify the important aspects of
the changes proposed to be made. The Authority means
the Punjab Revenue Authority and the Government
means the Government of Punjab.
The amendments proposed by the Bill after having been
enacted as the Finance Act, 2016, shall, with or without
modification, become effective on and from 01 July
2016, unless otherwise indicated.
It is suggested that the text of the Bill and the relevant
laws and notifications, where applicable, be referred to
in considering the interpretation of any provision. Since
these are only general comments, no decision on any
issue be taken without further consideration and
specific professional advice should be sought before any
action is taken.
Changes of consequential, administrative, procedural or
editorial in nature have either been excluded from these
comments or dealt with briefly.
ISLAMABAD: 14 June 2016
Ernst & Young Ford Rhodes Sidat Hyder
1
Budget Briefing
Table of Contents
Section
PUNJAB SALES TAX ON SERVICES ACT, 2012
Page
2
1.
Scope of tax and allied matters
10
2
2.
Special procedure and tax withholding provisions
14
2
3.
Deduction and adjustment of tax on inputs to the business
16
2
4.
Certain transactions not admissible
16A
2
5.
Tax credit not allowed
16B
3
6.
Return
35
3
7.
Offences and penalties
48
3
8.
Powers of adjudication
60
3
9.
Recovery of arrears of tax
70
4
10.
Amendment in Second Schedule
PUNJAB INFRASTRUCTURE DEVELOPMENT CESS ACT, 2015
TAX ON IMPORTED MOTOR CARS
4
2
5
10
5
Ernst & Young Ford Rhodes Sidat Hyder
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Budget Briefing
goods and services specified in the newly proposed
section 16A and 16B or the rules. Earlier the
Authority was empowered to issue a notification to
disallow or restrict the deduction of tax only to the
extent of services.
THE PUNJAB SALES TAX ON SERVICES ACT,
2012
1.
Scope of tax and allied matters
Section 10
Previously, the deductions / adjustments of tax were
allowed subject to the notification issued under
Section 16. The Bill proposes to modify this
condition while incorporating the reference of newly
introduced sections 16A and 16B, in sub section (2)
of section 16, specifying the conditions and
restrictions for claiming input tax adjustments,
which are currently provided in the Punjab Sales Tax
on Services (Adjustment of tax) Rules, 2012.
This section is a charging section. Sub Section (4) of
section 10 deals with the adjustment of input tax
from output tax, which is separately dealt with in
section 16. Realizing this fact, the Bill proposes to
omit the sub section (4) of section 10 and insert it
with certain modifications as sub section (1) of
section 16.
The proposed deletion of sub section 4 has rendered
the sub section 5 redundant, as it has reference of
sub section 4 and provides that the amount of tax
for adjustment shall not include any amount of
additional tax, default surcharge, fine, penalty or fee
imposed or charged under this Act or under any
other law. However, similar provision is proposed to
be inserted as sub section (4) of section 16.
2.
Special procedure and tax withholding provisions
Section 14
The Bill seeks to insert a new sub section (3) in
section 14; whereby, the prescribed person acting
as withholding agent, who fails to withhold or pay
the tax withheld, is liable to pay the amount of tax to
the Government treasury.
The Bill proposes to insert a new sub section 4,
whereby it is clarified that the amount of tax for
adjustment shall not include any amount of
additional tax, default surcharge, fine, penalty or fee
imposed or charged under this Act or under any
other law.
4.
Certain transactions not admissible
Section 16A
The Bill seeks to introduce this section, similar to
section 73 of the Sales Tax Act, 1990, whereby it is
proposed to allow the claim of input tax subject to
the following conditions:
Ø
Similar recovery provision is already available under
Rule 14 of the Punjab Sales Tax on Services
(Withholding) Rules, 2015. It is now inserted within
the Act to give legal coverage to the withholding
obligations.
3.
Transactions of services exceeding fifty
thousand rupees shall be made through a
crossed banking instrument, showing transfer of
the amount of sales tax invoice from the
business bank account of the service recipient to
the business bank account of the service
provider.
In case of online transfer including payment
through credit cards, payment is verifiable from
the bank statement of the respective service
provider and service recipient.
In case of transaction on credit, the payment is
made within 180 days from the date of issuance
of tax invoice.
Deduction and adjustment of tax on inputs to the
business
Section 16
Ø
The Bill seeks to substitute section 16 and the title
of section from “Adjustments” to “Deduction and
adjustment of tax on inputs to the business”. The
proposed change in the title depicts the depth of this
section as the rules related to deduction and
adjustment of input tax are proposed to be made
part of the Act.
Ø
The substituted section provides that the registered
person is entitled to adjust the tax paid or payable
against the taxable services received under the Act
exclusively used in connection with the levy or
providing of taxable services. The word “payable”
has been inserted to allow input tax adjustment,
whether paid or payable, as per the conditions laid
down in the Act.
The proposed sub section (1) starts with the words
“Subject to subsection (1)”, for which we understand
that it should be “Subject to subsection (1) of section
16”, as the Authority may disallow or restrict the
deduction under section 16 with respect to taxable
services specified in section 16A.
The bank account utilized for the purpose of this
section as declared to the Authority shall be
considered as business bank account.
The Bill further proposes to give power to the
Authority to restrict the deduction of tax on the
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Budget Briefing
5.
Tax credit not allowed
Section 16B
It is observed that under the proposed amendment,
the Government shall not allow the adjustment of
input tax on purchase of goods used for rendering of
taxable services, if adjustment of tax levied under
the Act is barred in the respective federal and
provincial sales tax laws. As a result, the input tax
will form part of cost of the service provider. The
proposed amendment is aimed at to respond the
proposed amendment in the Sales Tax Act, 1990,
whereby the Federal Government has proposed to
delete Clause (d) of Section 2(14) ibid which refers
to the provincial sales tax levied on services
rendered or provided to the person.
Section 16 of the Act allows a registered person to
claim adjustments or deductions, including refunds,
in respect of sales tax paid on any taxable services.
Rule 4 of the Punjab Sales Tax on Services
(Adjustment of tax) Rules, 2012 (the Rules) provides
certain restrictions or conditions on claim of input tax
adjustment against taxable services rendered.
In a recent judgement passed by the Hon’ble Sindh
High Court it was held that if the main legislation
provides for adjustment of input tax, it cannot be
refused by virtue of a subsidiary legislation like Rules
made thereunder.
It seems that in order to recognize the judgement of
the Hon’ble Sindh High Court, the Bill now proposes
to introduce Section 16B to the Act, which is
paramateria to Rule 4 of the Rules. However, besides
clarificatory and editorial amendments proposed by
insertion of the new Section, restrictions are placed
on adjustment of input tax in case of the following,
which were not prescribed under the relevant Rule.
Ø
Ø
Ø
Ø
Ø
Ø
Ø
Ø
Ø
goods and services liable to a tax rate lesser than
sixteen per cent of the charges or to a specific
rate of tax not based on value when used for
providing or rendering any service;
goods or services used or to be used for any
purpose other than for taxable supplies made or
to be made by the registered person;
goods and services acquired for personal or nonbusiness consumption;
goods and services not related to the taxable
supplies made by the registered person;
goods and services in respect of which input tax
adjustment is barred under the respective
federal and provincial sales tax law;
sales tax paid to the Federal Government or any
other Provincial Government for supply of goods
or provision of services, if the sales tax law of
the Federation or the Province concerned does
not allow adjustment of tax paid under this Act;
from the date to be notified by the Authority,
such goods and services which, at the time of
filing of return by the buyer, have not been
declared by the supplier in his return;
goods used in, or permanently attached to,
immoveable property, such as building and
construction material, paints, electrical and
sanitary fittings, pipes, wires, cables, glass
products and furniture, furnishings, office
equipment, excluding those directly used in the
economic activity of registered persons paying
sales tax at a rate of not less than sixteen per
cent; and
such goods or services as are notified or
specified by the Authority to be inadmissible for
input tax adjustment.
Further, the Bill proposes to nullify the effects of
certain court orders by putting specific restriction
on the persons who claimed input tax adjustment
against their fixed output tax under the Act and the
Federal or other Provincial sales tax laws.
6.
Return
Section 35
The Bill seeks to insert a new sub section (1A) to
clarify that the statement filed by a person who is
only obliged to withhold or deduct tax shall be
deemed to be a return filed by that person.
However, in case a person is registered for taxable
services, the filing of withholding statement shall
not be considered as filing of his return.
The proposed amendment is clarificatory in nature
to the extent of the persons registered as taxable
service providers, as similar provision is already
available in Rule 9 of the Punjab Sales Tax on
Services (Withholding) Rules, 2015.
7.
Offences and penalties
Section 48
In case any person fails to furnish a return
within the due date, the Act imposes a penalty
of Rs. 5,000 provided if a return is not filed
within 15 days of the due date, a penalty of Rs.
100 for each day of default shall be levied.
The Bill proposes to double the penalties by making
it to Rs. 10,000 and Rs. 200 for Rs. 5,000 and Rs.
100 respectively.
8.
Powers of adjudication
Section 60
Under the existing section, the Deputy
Commissioner is empowered to adjudicate the cases
where the amount of the tax involved or the amount
erroneously refunded exceeds Rs. 1,000,000 but
does not exceed Rs. 2,500,000.
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Budget Briefing
The Bill proposes to remove the lower limit of
Rs.1,000,000 to empower him to adjudicate the
cases below the threshold of Rs.1,000,000. The
upper limit remained unchanged.
9.
Recovery of arrears of tax
Section 70
Under the exiting section, any officer of the
Authority defined in sub section (27) of section 2
may exercise the powers of recovery of arrears of
tax.
2
The Bill proposes to restrict the recovery powers
only to those officers who shall be appointed by the
Authority under section 39 through a notification in
the official gazette for this purpose.
10. Amendment in Second Schedule
The Bill proposes to include the following services
under the Second Schedule with effect from 01 July
2016. These services are already taxable in other
Provinces and / or Islamabad Capital TerritorySr.
No.
60
61
62
Tariff
heading
Description of Services
Proposed
Rate
Services provided by
cosmetic and plastic
surgeons and hair
transplant services but:
EXCLUDING:
Services provided to acid
or burn victims.
Services provided by
warehouses or depots for
storage including cold
storages.
9847.0000
and
respective
headings
16%
9833.0000
and
respective
headings
16%
Services provided by
Packers including handling
and packaging services.
9819.1400,
9833.0000,
9841.0000
and
respective
headings
16%
12
The Bill further proposes to amend the scope of
following existing entries of taxable services and
tariff heading provided in Second Schedule. The
additions/subtraction in the entries are respectively
highlighted through underline and strike through for
convenience purposes:
Sr.
No.
1
Description of Services
Services provided by hotels,
motels, guest houses, marriage
halls and lawns (by whatever
name called) including pandal
and shamiana services, caterers
catering services (including all
ancillary/allied services such as
floral or other decoration,
Tariff heading
9801.1000
9801.3000
9801.4000
9801.5000
9801.6000
9830.0000
9837.0000,
14
furnishing of space whether or
not involving rental of
equipment and accessories) and
clubs including race clubs and
their membership services
including services, facilities or
advantages, for a subscription
or any other amount, to their
members.
Advertisement on television
and radio or advertisement
services showcasing of any
product or service in video
programmes, television
programmes or motion pictures
or music albums, excluding
advertisements:
(a) sponsored by an agency
of the Federal or
Provincial Government
for health education; or
(b) financed out of funds
provided by a
Government under an
agreement of foreign
grant-in-aid; or
(c) conveying public service
message, if telecast on
television by the World
Wide Fund for Nature
(WWF) or United Nations
Children’s Fund (UNICEF).
All kinds of advertisement
services including
advertisements on hoarding
boards, pole signs and sign
boards and on closed circuit TV,
websites or internet,
advertisements through brand
activation in any mode,
advertisement on moving
vehicles, aerial advertising,
advertisement through
provision of space or time, or
on bill-boards, public places,
buildings, conveyances, cell
phones, automated teller
machines, or through offering
product exclusivity in any
manner.
Construction services and
services provided by
contractors of building
(including water supply, gas
supply and sanitary works),
roads and bridges, electrical
and mechanical works
(including air conditioning),
horticultural works, multidiscipline works (including turnkey projects) and similar other
works but:
Excluding:
(i)
where the tax is
otherwise paid by
registered persons as
property developers,
builders or promoters
9862.0000 and
respective
headings.
9802.1000 and,
9802.2000 and
respective
headings
9802.3000,
9802.5000,
9802.9000 and
respective
headings
9824.0000 and
9814.2000
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Budget Briefing
15
16
31
39
47
for building
construction; or
(ii)
where the construction
work is funded under an
agreement of foreign
grant-in-aid or involves
construction of consular
buildings; or
(iii) Government civil works
including those of
cantonment boards
(iii) residential construction
projects where the
covered area does not
exceed 10,000 square
feet for a house and
20,000 square feet for
an apartment except
where construction
services are provided to
construct more than one
house or more than one
apartment building.”;
Services provided by property
developers, builders and
promoters
(including their allied services)
EXCLUDING:
Actual purchase value or
documented cost of land
Services provided by persons
engaged in contractual
execution of work works or
furnishing supplies
Services provided by business
support services, including
business auxiliary services
Services provided for specified
purposes including fumigation
services, maintenance and
repair (including building and
equipment maintenance and
repair including after sale
services) or cleaning services,
including collection and
processing of domestic waste
and street cleaning services,
janitorial services, dredging or
desilting services and other
similar services etc.
Services in relation to transport
of goods other than water,
through pipeline, conduit,
transmission lines or any other
medium (other than inland
carriage of goods by road
otherwise taxable or chargeable
to tax as such).
PUNJAB INFRASTRUCTURE DEVELOPMENT
CESS ACT, 2015
Section 2
The Punjab Infrastructure Development Cess Act, 2015
provides definition in clause (k) of Section 2 of “Value”
for the levy of Cess, which comprises of price, including
cost, insurance, freight, customs duty, sales tax or any
other levy determined by Customs authorities.
The Bill proposes to amend the said definition to the
extent of value of goods imported; whereby the values
shall be the same as determined by an officer of Customs
for the purpose of levy of Customs Duty under the
Customs Act, 1969.
The proposed amendment seems to reduce the burden of
Cess on imported goods.
9807.0000
And
respective subheadings of
heading 98.14
9809.0000
TAX ON IMPORTED MOTOR CARS
The Bill proposes to introduce a one-time tax on the
imported motor cars registered after 30 June 2016 at
the following rates:
Sr.
No.
(a)
9805.9200,
9805.9090 and
respective
headings
98.22 and,
9860.0000 and
respective
headings
Respective
Headings
(b)
(c)
(d)
Category of imported motor car
Motor car with engine capacity
exceeding 1300cc but not exceeding
1500cc.
Motor car with engine capacity
exceeding 1500cc but not exceeding
2000 cc.
Motor car with engine capacity
exceeding 2000cc but not exceeding
2500 cc.
Motor car with engine capacity
exceeding 2500cc
Rate of Tax
Rs. 70,000
Rs. 150,000
Rs. 200,000
Rs. 300,000
The term “motor car” is explained as a motor car as
defined in the Provincial Motor Vehicles Ordinance, 1965
(XIX of 1965). The Government may, by notification,
exempt any class of vehicles from the levy of the tax
under this section. The tax under this section shall not be
levied on a motor car owned by the Federal Government,
the Government or any other Provincial Government. The
Government may, by notification in official Gazette, make
rules to carry out purposes of this section.
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