KARACHI: In a significant step towards modernizing its tax administration and aligning with global best practices, the Sindh government has proposed the adoption of the United Nations’ Central Product Classification (CPC) coding system Version 2.1 for the administration of sales tax on services. This strategic move is outlined in the Sindh Finance Bill, 2025, and marks a notable departure from the province’s current service classification regime.
According to a detailed analysis by PwC A.F. Ferguson & Co., Sindh currently employs a custom classification structure for its sales tax on services. This existing framework has historically been influenced by the Federal Excise Act, 2005, and Chapter 98 of the Pakistan Customs Tariff, undergoing numerous amendments over time to cater to the province’s specific tax requirements. However, it has remained distinct from internationally recognized systems like the CPC.
Enhancing Clarity and Uniformity in Service Taxation
The newly proposed framework will replace these existing service classifications with CPC-based codes. The primary objective behind this alignment is to bring greater clarity, uniformity, and transparency to the taxation of services across Sindh. By adopting an internationally recognized standard, the province aims to eliminate discrepancies and reduce confusion in defining taxable services, particularly in the context of cross-border service transactions.
The adoption of CPC codes is expected to significantly enhance efficiency in service classification, improve the accuracy of tax reporting, and ensure better overall compliance through standardization. Furthermore, this transition is designed to reduce the administrative burden on businesses and taxpayers who operate across different jurisdictions, providing a more streamlined and predictable tax environment.
Deletion of Old Definitions and Dispute Resolution
The Sindh Finance Bill, 2025 also seeks to delete several existing service definitions from the Sindh Sales Tax on Services Act, signaling a comprehensive transition to the CPC-based framework. The Sindh Revenue Board (SRB) will be empowered to issue specific classification codes for services through official notification. It is important to note, however, that the inclusion or omission of any service in such a list will not automatically affect its taxability under the law, reinforcing that the CPC codes are for classification purposes rather than a primary determinant of taxability.
Crucially, the Bill incorporates a clear mechanism for resolving any disputes that may arise concerning the classification of services. In the event of a disagreement, the SRB will hold the final authority to adjudicate the matter, providing a clear pathway for resolution.
The Sindh government’s decision to integrate the UN CPC system into its taxation framework is seen as a forward-looking step that will modernize its services tax regime. This move is expected to align Sindh’s practices with international standards while ensuring greater flexibility and clarity for both taxpayers and the tax authorities within the province.
