In an interesting development, 28 taxpayers of Khyber Pakhtunkhwa Revenue Authority (KPRA) have opted to pay a higher rate of 15 percent sales tax on services in the province against the applicable lower rate of sales tax to claim adjustment of input tax/refund.
Khyber Pakhtunkhwa Revenue Authority (KPRA) has granted permission to 28 taxpayers to operate under the standard rate of 15 percent sales tax enabling them to claim adjustment of input tax.
According to a letter of the KPRA to the taxpayers, several applications were received by the Khyber Pakhtunkhwa Revenue Authority (KPRA) from registered persons providing/rendering services liable to KP sales tax at different reduced rates under the Second Schedule of the Khyber Pakhtunkhwa Finance Act, 2013 each containing request for grant of permission to operate under the standard rate of tax (15 percent) under Section 26A of the Khyber Pakhtunkhwa Finance Act, 2013.
These cases were considered by the Authority. The Authority had constituted a committee to examine all the applications on merit. The committee accordingly submitted its recommendations to the Authority.
In the light of recommendations of the committee, the Authority has approved and granted permission to only twenty-eight (28) cases as per the list duly attested and attached herewith as an integral part of this communication subject to the following conditions:
Firstly, the permission shall take immediate effect and shall remain valid unless reversion to a reduced rate of tax is allowed by the Authority, or it is otherwise withdrawn by the Authority as provided under Section 26A of the Khyber Pakhtunkhwa Finance Act, 2013.
Secondly, on conversion to the standard rate of tax in terms of this permission, the registered person shall be entitled to an adjustment of input tax paid or to be paid at the standard rate from the date of approval of the Authority, i.e., January 28, 2021, subject to all such conditions, limitations, and restrictions, applicable in this regard under relevant provisions of Khyber Pakhtunkhwa Finance Act, 2013, read with KPRA Sales Tax on Services Regulation, 2017, or as prescribed elsewhere under the Khyber Pakhtunkhwa sales tax on services law.
Thirdly, the registered person shall not be entitled to any adjustment of input tax paid before the date of effect of this permission, i.e., January 28, 2021, whether in respect of tangible inputs (goods) or intangible goods (services), in any case, the letter added.
A tax expert told Propakistani that the insertion of new Section 26A in the KP Finance Act, 2013, has provided an option to registered persons or classes of registered persons whose services are subject to reduce rates who, subject to the permission of the Authority, may charge KPST on their respective services at a general or standard rate, from the date of permission, and may adjust admissible input tax.
The Section also provides that the registered person or class of registered persons, subject to the permission of the Authority, may switch from a standard or general rate to a reduced rate of tax provided in the Second Schedule or any notification issued under the Act.
However, such permission for reducing the rate of KPST from the standard rate may involve an inquiry or audit to ascertain the genuineness of the request.
The Section also states that the input tax accrued during the period when the services were subject to the general or standard rate shall not be available for adjustment against the reduced rate services re-opted by the registered person or class of persons. The Authority may, on its motion or otherwise, withdraw the permission after issuing a show-cause notice.
This amendment will result in cost-saving for those service providers, whose services are subject to a reduced rate and are currently not eligible to make any adjustment of input tax used or consumed for the rendering of such reduced rate services, tax expert added.