LAHORE: Punjab Revenue Authority (PRA) has explained levy of tax on services clarifying that toll manufacturing can be taxed under the PRA Act 2012.
PRA spokesman Additional Commissioner (HQ) Babar Nawaz Raja said some business circles have contended that toll manufacturing (industrial vending) cannot be treated as services because of the definition of the “manufacture” and “manufacturer” given in section 2(16) & (17) of the Sales Tax Act, 1990.
He said the Punjab sales tax has been levied on the “services provided in respect of manufacturing or processing on toll or job basis (against processing on conversion changes)” with effect from 01-07-2013.
The spokesman said that PRA has examined matter and observed that the description and listing of services given in the First Schedule of the Punjab Sales Tax on Services Act, 2012 is minimum.
The Punjab government can levy sales tax even on services not mentioned in the said schedule that any transaction which not a supply of goods service is the major underlying principle of the definition/treatment of such transaction as service.
Under item 49 of Part-I of the Fourth Schedule of the Constitution of the Islamic Republic of Pakistan, 1973, the Federation can levy taxes only on the sales and purchases of goods (whether goods are) imported, exported, produced, manufactured or consumed, which means that the Federation cannot levy sales tax simply on the manufacturing or production of goods. Only their sale and purchase can be taxed. Imports are in fact purchases at the hand of importers and are taxed on the basis of destination principle.
He said under section 2(38) of the Punjab Sales Tax on Services Act, 2012, an explanation has been added that “a service shall remain and continue to be treated as service regardless whether or not rendering thereof involves any use, supply or consumption of any goods either as an essential or as an incidental aspect of such rendering”. This explanation is imperative because there are several categories of services where goods are involved for the purpose of rendering of services. Treatment of goods for processing purposes falls under the use of goods for vending purposes.
Raja sated that it is clear from section 3 (1) of the Sales Tax Act, 1990 that Federal sales tax is payable only on the taxable supplies (besides goods imported into Pakistan). Under section 2(41), taxable supply means a supply of taxable goods by an importer, manufacturer, wholesaler, distributor or retailer. Again under section 2 (33), the pivotal principle for any transaction to become a supply is that it must be a sale or the transfer of the right to dispose of goods as owner, which means “ownership title” must be transferred from seller to buyer, otherwise the transaction is not a supply for the purpose of Federal sales tax.
He explained under toll manufacturing, ownership title of goods is not transferred to the vendor under any circumstances, which means a transaction for the purpose of toll manufacturing can never be treated as supply.