The Punjab government has decided to impose sales tax on 11 unregulated small businesses and service providers as the province is gradually heading towards corporate economy. The government had initially decided to impose up to 16 percent sales tax on the service sector which the stakeholders had been resisting for the last one and a half years. Now the rate of the sales tax has been fixed between 5 to 14 percent, hoping a voluntary compliance of tax liabilities by a majority of businesses in this sector. The imposition of sales tax came on the recommendations of the Punjab Revenue Authority under Section 10 of the Punjab Sales Tax on Services Act 2012.
The government has classified the service sector in two categories. According to a notification issued by the provincial finance department, the sales tax will be charged at 5 percent on individuals or the companies offering services, including dry cleaners, healthcare centres, gyms, hair-cutting saloons,air-conditioned shopping malls, real estate dealers and builders, who undertake projects with an aggregate value not exceeding Rs 50 million in a financial year. According to another notification, the franchise services will be charged at 10 percent rate while tour operators, travel agents, chartered accountants, auditors, actuaries, tax consultants, liquidators, auctioneers and corporate law consultants will be charged at 5 percent. The services provided to the textile, leather, carpet, surgical and sports goods sectors in respect of manufacturing or processing will also be charged at specific rates.
As a matter of fact, collection of sales tax is very tricky business as some service providers are earning not in thousands, but in millions while many many others eke out a meager existence. The assessment of the annual income is linked with the ability of the government officials and giving the present state of affairs, one can imagine the results of the whole exercise. This exercise can lead to more chaos on the streets than cash in the government exchequer. The best option is that the government should classify business centers in various categories according to the revenue these centers generate in fiscal year and then impose fixed tax on every shop. It should be noted that not all the businesses generate taxable income and enblock imposition of sales will discourage the small business owners. The small business owners should also not be placed on the mercy of the government authorities in the given economic situation in the province and the country. The time is running out and the government has to resolve sales tax issue at the earliest.
