Khyber Pakhtunkhwa Revenue Authority (KPRA) had issued Khyber Pakhtunkhwa Sales Tax on Service Special Procedures (Withholding) Regulation, 2015 for prescribing rules and regulations relating to withholding of provincial sales tax. These regulations have now been repealed with the introduction of ‘Khyber Pakhtunkhwa Sales Tax on Services (Withholding) Regulation, 2020’ (“Regulations”) vide Notification No. F-16(4) KPRA/Notification/WH1394-99 dated August 13, 2020.
These Regulations applies to the withholding agents receiving taxable services in, for or in respect of the province of Khyber Pakhtunkhwa (for use, consumption, enjoyment or for any other purpose therein).
A summary of Regulations is discussed below:
- The Regulations shall be effective from the first day of September 2020;
- Withholding is defined as an obligatory process involving:
— retention of tax as per tax invoice or
— deduction of tax leviable but not levied on non-tax or commercial invoice,
by a service recipient on or from the value of the “taxable service” paid, to be paid or payable to the service provider and deposit thereof with the Government as aforesaid:
Provided that in case of non-tax or commercial invoice, tax amount shall be calculated treating the value given in such invoice as exclusive of tax and the tax amount so calculated shall be withheld from within the invoice value and paid to the Government accordingly;
Explanation: Under no circumstances, withholding shall be deemed or treated as reverse charge where non-tax or commercial invoice value is or has been legally allowed to be treated as value inclusive of deductible and payable tax.
- “Withholding agents”- According to the Regulations all recipient of taxable services falling under any of the following categories shall be withholding agents.
- All Federal Government Departments and officers etc.
- The Departments and Offices of the Ministry of Defense
- All other Federal government departments
- All Departments and Offices of the KPK Government including District Government Departments
- All Provincial Government Departments including District Government Departments
- Environment Department of the KPK Government
- All Divisional Engineers of the Departments or Irrigation, Public Health Engineering and Communication & Works including the Local and District Government Departments.
- All public sector organizations, institutes, corporations, universities bodies, boards, projects, ventures entities, enterprises, Institutions authorities of the Federal, Provincial, District or Local Government including special purpose institutions
- Companies as defined under sub-section (12) of section 2 of the Act including those located in the jurisdiction of or registered with any other tax authority for the purposes of payment of sales tax in respect of goods or services rendered or provided in the province of Khyber Pakhtunkhwa.
- Any other person specified, declared or confirmed by the Authority as withholding agent.
- The above shall be treated as withholding agents regardless of the location of his or its head office or location of the business premises or jurisdiction of his or its registration or enrolment.
- Self-Audit:- A new concept has been introduced which says that as and when need arises for the audit of the propriety of due payment of withholding tax amounts by the government department, public sector organizations or account offices etc. the Authority may instead of conducting audit itself, require them for their self-audit of such amounts and payment and to furnish audit report among with the certificate. However, this will not bar the Authority for any verification, investigation, or re-audit on this account.
- Services not subject to withholding:- The telecommunication services (excluding such services as are provided or received by telecom companies to or from each other) shall not be liable to withholding.
- Compulsory Application of full Withholding:- The following services shall be compulsorily liable to full withholding at application tax rates across the board:
- Advertisement services of all description, categories and types;
- Services provided by un-registered person or if registered, are inactive/non-active as per Active Taxpayers’ List of the Authority;
- Services provided or rendered to Federal or Provincial Government Departments or public sector institutions, organizations, entities and projects etc. regardless of the rate of tax on such services.
- Services provided in the province of Khyber Pakhtunkhwa by persons from outside the province if such persons are not registered with the Authority;
- Services liable to tax under the Act at reduce rate (less than the standard rate of 15%).
- Extent of withholding in other cases:- — In all other cases not covered under aforesaid paragraph, only fifty percent of the amount of leviable tax shall be withheld by the withholding agent and deposited with the Government as provided under the regulation.
- Input tax adjustment under withholding regime:- The person who are compliantly paying the provincial sale tax on services at standard rate of 15% or at higher rate shall be entitled to take admissible input tax adjustment in case of services received from person other than unregistered or inactive registered persons subjected to full withholding under this regulation or in case of reduce rate of tax (including fixed rate of tax or payable on fixed basis).
- Deposit time of withholding tax amount:- If the withholding agent is registered with the Authority as Service provider, or if not registered with the Authority as such but registered with FBR under Sales Tax Act, 1990, the withheld tax amount shall be deposited by the prescribed due date of the month in which he claims input tax credit/adjustment or the date on which payment is made to the service provider whichever is earlier.
- Where withholding agent does not claim input tax credit for a period of six months succeeding the month in which the tax invoice was issued, or is otherwise not entitled to claim input tax credit, he shall deposit the withheld or withholdable amount of tax on the date on which he makes the payment to service provider or by the last day of the said six months from the date of invoice, whichever is earlier.
- In case of other withholding agents, the withheld tax amount shall be deposited by the 15th day of the following month in which payment is made to the service provider.
- Registration of withholding agents under different categories.
- Separate registration with the Authority as withholding agent is not required for persons already registered as service providers. if not already done, they will have to make an online request for additional insertion as withholding agent in the relevant category in their original registration.
- Unregistered persons shall apply for registration as withholding agents with the Authority. The Responsibility of any person as withholding agent shall not be affected in the absence of such registration and payment of tax will have to be made as per procedures as may be prescribed for such persons.
- Procedure for accounting and deposit for withheld amount of sales tax:- Regulation 10 provides procedure for accounting and deposit of withheld amount of sales tax on services under different accounting systems of the Federal and Provincial Governments.
- Monthly withholding statements by other withholding agents:- The withholding agent shall, for each month, electronically prepare and file a statement by 18th of the following month and in case no withholding transaction has taken place in any month, a nil statement shall be filed.
- Conditions for withholding from unregistered service provider:- Besides withholding leviable provincial sales tax, following shall be invariably taken:
- (CNIC) from an unregistered individual service provider, or
- National Tax Number (NTN) in case of Partnership/Company;
The information about the NIC and NTN shall be provided to the Authority through the very next statement, declaration, return filed.
- Issuance of Withholding Certificates:- On request by the service provider from whom tax withholding has been made, the withholding agent shall issue a withholding certificate and one copy of every such certificate shall invariably be sent to the Deputy Collector (Withholding) of the Authority.
- Adjudication for failure or default in tax withholding:- The officer of the authority not below the rank of Assistant collector may issue show cause notice to defaulting withholding agent. Accordingly, adjudicate the case as determine and recover the tax liability along with default surcharge and penalty in terms of the relevant provisions of the Act and rules and regulations made thereunder. Moreover, the failure to file a monthly statement shall be treated as failure to file a monthly return and shall be liable to penal action or penalty accordingly.
- Miscellaneous matters:-
- the withholding agents shall maintain all relevant records and documents of all their withholding transactions including invoices, proofs of tax payments, statements and withholding certificates etc for a period of five years.
Link of Document
BASED ON THE ABOVE KHYBER PAKHTUNKHWA SALES TAX ON SERVICE SPECIAL PROCEDURES (WITHHOLDING) REGULATION, 2015, KHILJI & CO HAS UPDATED ITS TAX RATE CARD 2020-21. KINDLY VISIT FOLLOWING LINK TO ACCESS THE COMPLETE TAX RATE CARD.