The cost of new development projects has increased in Punjab due to the imposition of a 16 percent sales tax on contractors, it was learnt. This was confirmed by the Punjab Revenue Authority (PRA) Management Chairman Dr Raheel Ahmed Siddiqui who, while talking to Business Recorder, stated that Punjab has issued a notification for the imposition of 16 percent sales tax on services of contractors effective from July 01, 2016. He said that Punjab government took this step to enhance the tax net.

PRA Additional Commissioner and Spokesperson Shehzad Mehmood Gondal said that to his knowledge Punjab is the only province to impose this tax on contractors; and PRA has served notices to contractors of new civil works (without foreign aid) for payment of 16 percent sales tax.

The objective, he added, was to document service providers associated with public sector projects. National Highway Authority (NHA) Spokesman Kashif Zaman toldBusiness Recorder that NHA was paying the tax on those projects whose bids were submitted before the tax was imposed as the winning contractors had not incorporated it in the bidding process.

According to sources, the Ministry of Planning, Development and Reforms has discussed the cost escalation of development projects in Punjab due to the imposition of the 16 percent sales tax on contractors during the recent meeting of Central Development Working Party (CDWP) which was held on February 07. National Highway Authority (NHA) in the meeting sought more funds from the Planning Commission for development projects due to the imposition of this new tax on contractors. As per FBR sources, the FBR is charging 5 percent reduced rate of sales tax on construction services and 16 percent sales tax on contractual execution of work under Islamabad Capital Territory (Tax on Services) Ordinance 2001.

Copyright Business Recorder, 2017