Service Providers Given Ultimatum: Present Accounts for Audit or Pay 8% Tax

Service Providers Given Ultimatum: Present Accounts for Audit or Pay 8% Tax


Over the weekend, Pakistan’s Finance Minister Ishaq Dar issued an ultimatum on Saturday to service providers: either they present their accounts for auditing purposes or pay a minimum of 8 percent tax.

If service provides choose to hand over their accounts for auditing purposes, then they will have to give an undertaking of paying 2 percent tax. Irrespective of which road they decide to pursue, service provides will have to pay the tax.

These decisions will be implemented from November 1, 2015. According to a source, Ishaq Dar chaired a meeting that comprised of 12 representatives belonging to the service sectors and stated that they have a choice between one of the two options in order to complete their tax liability.

If companies choose to present their accounts, then under the Income Tax Ordinance 2001, they will have to give an undertaking in the form of writing on the date specified by the government for tax year 2016.

Under this agreement, they will not be allowed to pay less than 2 percent tax of their gross turnover. Coming to the second option, if service companies choose to pay 8 percent of tax for the gross turnover, then they will have to pay the amount if it exceeds the actual tax payable after close assessments of their accounts. This process will be carried up to a maximum of five years.

The 12 corporate service sectors have been listed below:

  1. Freight forwarding services (for sea based operations)
  2. Air Cargo services
  3. Courier services
  4. Manpower outsourcing services
  5. Hotel services
  6. Security guard services
  7. Software services
  8. Tracking services
  9. Advertising
  10. Share registrar
  11. Engineering
  12. Car rental

Taxation will also be reviewed under section 153(1)(b) of the Income Tax Ordinance 2001. A five member committee will be spearheaded by Haroon Akhtar Khan, who happens to be the special adviser to the prime minister on revenue. The source states that the aforesaid service sectors operate on very thin margins and applying 8 percent of tax is a burden that cannot be sustained by them.

After the committee discussed this issue with 12 representatives, they were able to submit their final report to the finance minister.