KCCI urges withdrawal of 14pc services tax

KARACHI: The Karachi Chamber of Commerce and Industry (KCCI) has urged the Sindh government to withdraw the proposed services tax of 14 percent on indenters in provincial budget 2015-16, warning that most of the indenting agents would move their activities outside of Sindh if the tax is not withdrawn.
President KCCI Iftikhar Ahmed Vohra, in a letter to Murad Ali Shah, Sindh Minister for Finance, pointed out that already a number of industries and businesses moved out of Sindh due to law and order and harassment by tax authorities under various pretexts.
“It is also likely that many indenters will now retain a major chunk of their earnings abroad, which will be a loss of foreign exchange for the country and also a loss in WHT collection,” he added.
Vohra is of the view that indenters are not liable to pay service tax because they are not providing any local services. Rather they are engaged in export of service to foreign principals and paying five percent withholding tax to the federal government on such export earnings. “The earning of indenting agents is considered as export earnings, which do not come under the purview of service tax by the province,” he added. He mentioned that indenters work on a very low rate of commission and face fierce competition. They negotiate with foreign suppliers for the most competitive prices of raw materials and finished products, at a commission as low as 0.5 percent to 1.0 percent. Within this meagre income they have to meet their operating expenses and travel expenses as well. A service tax of 14 percent over and above the five percent with-holding tax (income tax) is therefore impossible to pay for indenters, he stressed.
President KCCI further stated that no service was being provided by indenters within or outside the province of Sindh. Services they provide are outside Pakistan, therefore they do not fall within the preview of Sindh Services Tax Act, he reiterated and urged the authorities to withdraw the proposed service tax of 14 percent on indenters in the provincial budget.