Pakistan: FBR and provinces notify uniform “Place of Provision of Services Rules, 2023”

To harmonize the sales tax on services across the country, the federal government and four provincial governments i.e. Sindh, Punjab, Khyber Pakhtunkhwa, and Balochistan have notified uniform “Place of Provision of Services Rules-2023”.

These rules are applicable from May 1, 2023, however, the rules related to “Electric Power Transmission Lines Services” will be applicable from July 1, 2023, through upcoming finance act in June 2023.

The services covered under these rules are advertising, advertising agents, insurance and reinsurance, insurance agents and insurance brokers, franchise services, intellectual property and licensing services, and the transportation of goods.

These rules not only harmonize the sales tax on services across the country but also provide the rules for the determination of input tax where the service transaction is provided in more than one province. The input tax can be claimed as ‘attributable’ in the same proportion as is declared in relation to the taxable value of the service, subject to other restrictions and limitations as provided in the Act and the rules made there under.

Under these rules, the transmission of electricity would be treated as a service from July 1, 2023.

Provincial Rules 2023 revealed that in the case of electric power transmission lines services, the place of provision of service shall be the place of the origin and the destination of transmission in a manner that the amount of tax involved is shared equally by the provinces in which the transmission originated and in which such transmission terminated.

Provided that where the electric power transmission lines service originates and terminates in the same province the place of provision of service shall be the province itself.

Provided further that where the electric power transmission lines service originates in a province where the tax is levied but terminates in a province or area where such tax is not levied, the place of provision of service shall be the province where the transmission originates, the rules added.

Where the electric power transmission lines service originates in a province where the tax is not levied but terminates in a province or area where such tax is levied, the place of provision of service shall be the province where the transmission lines terminate.

Where the rate of tax applicable in the province in which the transmission lines service originated is different than the rate of tax applicable in the province in which such transmission lines service terminated, the invoice shall indicate the amount of tax payable to the respective provinces as determined based on the respective rate(s) of tax on equal share of the value of that inter-province transmission lines service.

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Reference/ Citation

https://download1.fbr.gov.pk/SROs/20234191442152934SRO494(I)2023.pdf