The Finance Act 2017 amends and extends the definition of the term "Franchise" by including those franchise agreements into the ambit of Sindh Sales Tax on Services which involves such Franchise services without any consideration or fee, and probably will raise great deal of questions and arguments in near future as to how can value of services, which have been rendered without consideration or fees or one may say for free, be deemed to be taxable.
However, it is pertinent to note that a provision to Rule 36(2) of Sales Tax on Services Rule, 2011 is very clear on the point that where there is no formal agreement between the Franchiser and Franchisee, the assessment of value for SST on franchise service is to be made @ 10% of the turnover.
2. Definition of Place of Business - S. 2(64) Previously, the definition of the term "place of business" included a person, carrying out an economic activity needed to occupy a space in Sindh but the Legislatures vide Finance Act 2017 broadens the scope of definition by including those person carrying out an economic activity through virtual presence, website, web-portal, websites or any other form of e-commerce.
It is pertinent to note that the change is likely to give rise to chaos on the area of interpretation of the term "Person" as it has broaden the definition of person in some manner by including those service provider, who are providing services though above mentioned channels without being physically present.
3. Definition of Programme - S. 2(67B) The Finance Act 2017 changes the definition of the term "Programme" by enhancing the scope of definition of the subject term by including, any audio or visual matter, re-recorded or subjected to any post-production process like dubbing, coloring, subtitling or captioning in its previous definition.
4. Person liable to pay tax - S. 9(1) Previously, sub-section (1) of Section 9 of SSTAS burdened the liability on registered person providing services to pay tax on taxable services. The Finance Act 2017 makes the Service Provider and Service Recipient jointly and severally liable where the recipient of services, being a withholding agent, fails to make payment of tax within 180 days from the date of invoice and such service provider also fails to make payment of tax within the prescribed due date.
5. Restriction on claiming Input Tax The Finance Act 2017, through new sub-clause (jj) in sub-section (1) of Section 15A excludes registered person providing services, from claiming input tax paid on acquiring goods and services liable to sales tax at specific rate or at fixed rate or at such other rate not based on values or at a lesser rate than 13% ad valorem.
It may be observed that the similar clause appears to be in existent under the Rules 2011 being sub-rule (ii) of Rule 22A. It may be summed up from the above, that the introduced amendment has been made with intention to make it a part of the main legislation. The Act 2017 further introduces that the telecommunication service provider pooling the sales tax @ 19.5% will be able to claim input tax adjustment on goods and services at the rate not exceeding 17%.
6. Input tax adjustment on Capital Goods -S.15B Previously, registered person could claim or adjust input tax on capital goods and fixed assets EXCLUSIVELY USED in providing or rendering of taxable services under Section 15A of the Act.
The Finance Act 2017, without prejudice to provision S. 15A, inserts new section 15B in SSTAS, hence allowing the registered service provider to claim input tax paid on acquisition of capital goods, machinery and fixed assets as are classified under Chapter 84 and 85 of First Schedule to Customs Act 1969 in twelve (12) equal monthly installments.
It is to remind that such provision was also available in Federal Sales Tax Act, 1990 which remained in field till 2011 as being withdrawn.
7. Assessment of Tax-Recovery-not levied short levied - S. 23 & 47 The Finance Act 2017 increases the time limit from 120 days to 180 days from the date of issuance of show cause notice for passing an assessment order under section 23 and 47 of the Act or with such extended period as the competent officer may for reason to be recorded in writing fixes the same. Meaning thereby, the time period for passing an order has now been extended from 6 months to 8 months.
8. Short paid amount Recoverable without serving show-cause notice - S. 47A The Finance Act 2017 inserts new section 47A whereby extending the powers of the relevant authority with an intention to recover the short paid amount of tax or default surcharge without issuing any show-cause notice, as being prerequisite before initiating any proceedings.
It is relevant to note that the introduced change has bypassed the principle settled over the time by the Apex Court which will likely give rise to multiple proceedings in respect of the same and will similarly results into tax demands by the tax authorities, directly or indirectly, without making proper assessment under the 23 of the Act.
9. Monitoring, Tracking & Offences and Penalties - S. 43 The Finance Act 2017 inserts new section 54B in SSTAS in relation to monitoring or tracking by electronic or other means. The authority or power in this connection has been vested with the Board to invent and implement electronic system for monitoring and tracking the transactions performed by the registered person. However, the penalties, with respect to the same, have also been set forth, at the rate of Rs 10,000 or an amount equivalent to tax involved whichever is higher or in terms of imprisonment (as discussed in section 43 of the act) against those who happens to refuse or denies the compliance of the new provision.
10. Appeal The Finance Act 2017 inserts new section 25A, pertaining to remedy for de-registration, within the ambit of Section 57 of SSTAS. Previously, there was no recourse or remedy available for persons who get de-registered by the Board. However, the introduced section deems to allow the aggrieved person to approach and file the appeal before Commissioner (Appeals).
11. Automatic Stay against Recovery Tax - S. 66 The Finance Act 2017 inserts new provision in clause (f) in sub-section (1) of Section 66 by introducing a scope of automatic stay in favor of the person whose proceedings are pending before Commissioner (Appeals) for adjudication by depositing 25% of the disputed amount into SRB.
It is pertinent to note that introduced change seems to have been driven from the principle laid down by the superior courts in the following cases reported as 2007 YLR 2017, 2012 YLR 1136. The referred citations are just an example and there are also other case laws available on this point.
12. Condonation of Time Limit - S. 81 The Finance Act 2017 adds an explanation in Section 81 of the Act, thereby allowing the Registered Person as well as officials of Revenue Authority to apply for condonation of time limits.
The added explanation in Section 81 may be interpreted as a Shield for the Revenue Authorities which will protect them from getting their notices/show-cause notices dismissed on the sole ground of expiry of time limitation and as a result, a leniency will likely be spread among the officers to issue the Notices as and when they willing.
13. Issuance of License made subject to Registration in SRB -S. 72A The Finance Act 2017 inserts new Section 27A in SSTAS, empowering the Board, after obtaining prior approval of Government by issuing notification in Official Gazette, to allow any competent authority to issue or renew license or permission for engaging into an economic activity.
Further, the Board may also restrict such competent authority from issuing or renewing such license or permission to person unless submitting evidence of its registration under section 24 or 24A or 24B of the Act.
AMENDMENTS INTRODUCED VIDE NOTIFICATIONS
14. SRB Withholding Rules: The amendment provides that in case no sales tax has been mentioned by the registered service provider on invoice issued by him, the whole of sales tax shall be withheld at the applicable rates. The same treatment was followed earlier in case of unregistered service providers.
15. Exemption on life insurance services Exemption on life insurance services under tariff heading 9813.1500 (other than related reinsurance services), which were exempted up to June, 2017 (subject to certain conditions), are made exempted up to June 2018.
16. Amendment in rates Following amended rates has been introduced:
1. Travel agents - 10% to 8%
2. Tour Operators - 10% to 8%
3. Renting of immovable property services - 8% to 3%
4. Telecommunication services - have been omitted from reduced rates. This means that SRB shall be charged at 19.5% in normal manner.
5. Reduced rate of 3% has been introduced for indenting services^
6. Reduced rate of 3% has been introduced for call center services
17. Amendments in Rules
1. Period to claim input tax has been extended from 4 months to six months
2. Earlier, with respect to labour and manpower Supply Services, reimbursement amount was excluded from value of services for the purpose of Sindh Sales Tax. Now the provision has been omitted and the sales tax shall be charged on gross amount charged for the services provided.
1. Definition - Due Date - S. 2(17) Previously, due date in relation to furnishing the Sales Tax Return was 15th of the month following the end of the tax period. The Finance Act 2017 introduces to amend the definition of the term "due date" by introducing different dates for submission of different annexures of tax return. The introduced amendment infers the idea of sales tax real time invoice verification through which input tax adjustment will be allowed to service recipients subject to declaration of invoices by service providers in the return.
2. Definition- Place of Business - S. 2(30) Previously, the definition of the term "place of business" included a person, carrying out an economic activity needed to occupy a space in Punjab but the Legislatures vide Finance Act 2017 intends to broaden the scope of definition by including those persons carrying out an economic activity through virtual presence, website, web- portal, websites or any other form of e-commerce.
It is pertinent to note that the introduced change is likely to give rise to chaos on the area of interpretation of the term "Person" as it has broadened the definition of person in some manner by including those service providers, who are providing services through above mentioned channels without being physically present in Punjab.
3. Liability of a Registered Person - S. 11A The Finance Act 2017 inserts a new section 11A in the Act, making the Service Provider and Service Recipient jointly and severally liable where the recipient of services, being a withholding agent, fails to make payment of tax within 180 days from the date of invoice and such service provider also fails to make payment of tax within the prescribed due date.
4. Collection of Tax - S. 14A The Finance Act 2017 inserts new section 14A in the Act, empowering the Revenue Authority to dictate the Special Procedure Rule in relation to assigning the responsibilities for collection of tax upon any party, person or class of person (hereinafter referred to as Collecting Agent) and not necessarily service provider or recipient. The said collecting agent shall then be liable to pay the tax so collected to the relevant authority.
5. Input Tax Adjustment & Deduction - S. 16 The Finance Act 2017 allows the registered person to claim adjustment, reduction, refund of tax under federal or provincial laws upon furnishing of tax invoices or goods declaration bearing the name of the Registered Person and its National Tax Number. The requirement for provision of documents appears to be intended to justify the legality of the input tax so claimed for adjustment, deduction or refund by the registered person.
6. Input Tax Adjustment on Capital Goods - S.16C The Finance Act 2017 inserts new section 16C in PSTAS which allows the registered service provider to claim input tax paid on acquisition of capital goods, machinery and fixed assets in twelve (12) equal monthly installments.
It is to remind that such provision was also available in Federal Sales Tax Act, 1990 which remained in field till 2011 as being withdrawn.
7. Time Limitation for Assessment - S. 24 Previously, assessment for recovery of tax not paid or short paid could be made within five (05) years from the conclusion of that particular tax year. However, the Finance Act 2017 introduces to extend the time period to eight (08) years. Therefore, giving a leverage to the Authority to initiate its proceeding without making any change in section 32 (Retention and production of records and documents) which certainly will lead to multiple proceedings as section 32 requires the person to maintain the records and documents for a period of six (06) Years only.
8. Appointment of Authorities-S. 39 Previously, there was no designation of "Enforcement Officer" and "Risk Compliance Officer" in the Act. However the Finance Act 2017 adds the afore-mentioned designations, without elaborating their key roles, in Section 39 who shall be subordinate to Deputy Commissioner or Assistant Commissioner.
9. Offences and Penalties - S. 48(10) Previously, any person involved in obstructing any officer of the Authority in performing its official duties was held to be liable to pay Rs 25,000 or 100% of the tax payable (whichever is higher). However, the Finance Act 2017 introduces to increase the amount of penalty to Rs 100,000 or 100% of the tax payable (whichever is higher) for committing the above-mentioned offence.
10. Recovery of Arrears of Tax-S. 70 The Finance Act 2017 amends section 70, whereby empowering the officer to recover the amount of tax defaulted, from the person (third person) who owes any amount of money to the defaulter (taxpayer) in question under legally enforceable relation but not limited to Purchase Contracts, Contracts with banking companies, lease contracts, loan agreements, employment contracts, life insurance contracts. Furthermore, an automatic stay shall be granted in favor of the person/taxpayer whose proceedings are pending for adjudication before Commissioner (Appeals) upon its payment of 25% of the disputed amount before the relevant authority.
11. Power to restrain certain authorities - S.76A The Finance Act 2017 inserts new Section 76A in PSTAS, thereby empowering the Authority, after obtaining prior approval of Government by issuing notification in Official Gazette, to allow any competent authority to issue or renew license or permission for engaging into an economic activity Further, the Board may also restrain such competent authority from issuing or renewing such license or permission to person unless submitting sufficient evidence of its registration under the Act.
12. Service of Orders and Decisions - S. 78 The Finance Act 2017 amended in section 78 with respect to service of notices or show cause notices through electronic means. Service of notices through this new channel will held the notice to have been validly served.
13. Condonation of Time Limit - S. 84 The Finance Act 2017 adds an explanation in Section 84 of the Act, thereby allowing the Registered Person as well as officials of Punjab Revenue Authority to apply for condonation of time limits.
The added explanation in Section 84 may be interpreted as a Shield for the Revenue Authorities which will protect them from getting their notices/show-cause notices dismissed on the sole ground of expiry of time limitation and as a result, a leniency will likely be spread among the officers to issue the Notices as and when they willing.
14. Amendment in Second Schedule
a) Telecommunication Services - Serial No.06 The Finance Act 2017 introduces an exemption for students who are using internet services valued at not more than Rs 1500/per student. Such exemption is limited to students only.
b) Construction Services - Serial No. 14 The Finance Act 2017 reduces the tax rate on construction service, without allowance of any input tax adjustment, carried out in respect of federal/provincial civil works projects including those of cantonment board and funded through the Foreign Loans launched during July 1, 2016 at the rate of One Percent, and at the rate of Zero Percent for the projects launched prior to July 01, 2016.
c) Execution of Contract Previously, there was an exemption on contractual execution of work where total value of the same does not exceed Rs 50 Million. The Finance Act 2017 withdraws such exemption and makes the contractual execution of work taxable, disregarding value of contract.
1. Amendment in Second Schedule The FA 2017 enhances the scope of services connected to travel facilities by introducing "Ride Hailing Services" in the First Schedule of The Khyber Pakhtunkhwa Finance Act 2013 under the head of services.
Copyright Business Recorder, 2017