SINDH BUDGET
BRIEFING 2016
This Memorandum is correct to the best of our knowledge
and belief at the time of publication. It is intended to
provide only a general outline of the subjects covered. It
should neither be regarded as comprehensive nor
sufficient for making decisions, nor should it be used in
place of professional advice. The Firm and Ernst & Young
do not accept any responsibility for any loss arising from
any action taken or not taken by anyone using this
publication.
This Memorandum may be accessed on our website
http://www.ey.com/pk
Ernst & Young Ford Rhodes Sidat Hyder
Budget Briefing
This Memorandum has been prepared as a general guide
for the benefit of our clients and is available to other
interested persons upon request. This should not be
published in any manner without the Firm’s consent. This
is not an exhaustive treatise as it sets out interpretation
of only the significant amendments proposed by the Sindh
Finance Bill, 2016 (the Bill) in the Sindh Sales Tax Act,
2001 (the Act), Sindh Finance Act, 1994 (the Cess Act),
Stamp Act, 1899 (the Stamp Act), including the already
enacted Sindh Companies Profits (Workers’ Participation)
Act, 2015 (the WPPF Act) in a concise form sufficient
enough to amplify the important aspects of the changes
proposed to be made. The Board means the Sindh
Revenue Board and Government of Sindh.
The amendments proposed by the Bill after having been
enacted as the Finance Act, 2016, shall, with or without
modification, become effective on and from 01 July
2016, unless otherwise indicated.
It is suggested that the text of the Bill and the relevant
laws and notifications, where applicable, be referred to in
considering the interpretation of any provision. Since
these are only general comments, no decision on any
issue be taken without further consideration and specific
professional advice should be sought before any action is
taken.
Changes of consequential, administrative, procedural or
editorial in nature have either been excluded from these
comments or otherwise dealt with briefly.
KARACHI: 12 June 2016
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Table of Contents
Section
SINDH SALES TAX ON SERVICES ACT, 2011
Page
2
1.
Revision in Rate of Sales tax
2
2.
Negative list of services
2
3.
Input Tax Credit Not Allowed
4.
Adjustment
5.
Broadening of tax base
6.
Definitions
7.
15A
2
15
3
3
2
3
Joint and several liability
18
5
8.
Sales of taxable activity or transfer of ownership
19
5
9.
Change in the period of limitation
23(2), 27(1), 47(1), 60(5)
and 74
5
30(5)
6
23(8) and 47(6)
6
10.
Filing of Returns
11.
Assessment and recovery of tax
12.
Recovery of tax
47
6
13.
Enhancement of exemption limits
10
6
SINDH DEVELOPMENT AND MAINTENANCE OF INFRASTRUCTURE
CESS
Schedule to Sindh Finance
Act 1994
7
STAMP DUTY
Sections 31, 73 and
Schedule to the Stamp Act,
1899
8
SINDH COMPANIES PROFITS (WORKERS’ PARTICIPATION) ACT, 2015
10
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specifically provided in the negative list. It is proposed
that a draft negative list will be tabled for discussions
with the concerned stake holders in July 2016 and
made operational from 01 December 2016.
SINDH SALES TAX ON SERVICES ACT, 2011
1.
Revision in Rate of Sales tax
Presently, the standard rate of sales tax on services
listed under the Second Schedule of the Act is 14%.
Whilst it is appreciated that by the introduction of such
negative list, all services will become taxable, the
Scheme is generally recognized in jurisdictions where
there is complete value added tax mode of taxation
and there is no overlapping of taxes. In our country,
where sales tax is levied in a significantly varying value
added tax mode by the Federation and the Provinces,
such scheme, in our view may not be practically
feasible for business and trade. Therefore, it is
essential that if the SRB intends to significantly
enhance the scope of taxable services, it should enter
into dialogue with the Federal and Provincial revenue
collecting authorities of the Country for the sake of
uniformity in order to avoid any adversities for the
business and trade in the Province.
The Bill now seeks to reduce the standard rate of sales
tax from 14% to 13%.
Presently, certain services have been notified to be
taxed at a reduced rate of 6%. The Provincial Finance
Minister’s budget speech and salient features issued
by the Sindh Revenue Board [SRB] has proposed to
increase such rate to 8% with effect from 01 July
2016 through a notification to be issued in this
regard.
Telecommunication Services which are presently liable
to Sindh sales tax @ 18% are now proposed to be
taxed at an enhanced rate of 19%.
Needless to say that such expansion in the scope of
taxable services will require extensive capacity
building in the provincial tax collection agency in order
to reap the benefits of the desired expansion.
The rate of sales tax on the following services charged
at reduced rates are proposed to be enhanced from 6%
to 8% –
Description of Services
2.
Tariff
Heading
Program Producers and
Production Houses
9832.0000
Legal practitioners and
consultants
9815.2000
Accountants and auditors
9815.3000
Tax consultants
9815.9000
Construction services
9824.0000
Services provided or rendered by
corporate law consultants
9833.0000
Services provided or rendered by
persons engaged in intercity
transportation or carriage of
goods by road or through
pipeline or conduit
9836.0000
Renting of immovable property
services
9806.3000
3.
Input Tax Credit Not Allowed
Section 15A
Section 15 of the Act allows a registered person to
claim adjustments or deductions, including refunds, in
respect of sales tax paid on any taxable services. The
Rule 22A of the Sindh Sales Tax on Services Rules,
2011 (the Rules) provides certain restrictions or
conditions on claim of input tax adjustment against
taxable services rendered. In a recent judgement
passed by the Hon’ble Sindh High Court it was held
that if the main legislation provides for adjustment of
input tax, it cannot be refused by virtue of a subsidiary
legislation like Rules thereunder.
It seems that in order to recognized the judgement of
the Hon’ble Sindh High Court, the Bill now proposes to
introduce Section 15A to the Act which is paramateria
to Rule 22A of the Rules. However, besides
clarificatory and editorial amendments proposed to be
made by insertion of the new Section, the following
restrictions are significant to note, which were not
prescribed under the relevant Rule.
Negative list of services
One of the most significant features of the budget
speech of the Provincial Finance Minister was the
proposed conceptual change in the Scheme of taxation
of services in the Province. Under the proposed
change, all services provided or rendered in the
Province will become taxable except for those
Ø
The goods in respect of which sales tax has not
been deposited in the Federal Government
treasury by the respective supplier of goods.
Ø
Goods or Services procured or received by a
registered person during a period exceeding six
month prior to date of commencement of the
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provision of taxable services by him. The proposed
amendment is significant and critical in nature, in
so far it would have an adverse impact on cost of
doing business and result in creating hindrance for
attracting foreign investment especially for
infrastructural development and public interest
projects which usually take more than six month
period to commence its business activities.
Ø
Description of
Services
authorized to transact
business on behalf of
others
The amount of sales tax paid on the
telecommunication services in excess of 19% ad
valorem and the amount of sales tax paid on other
taxable goods or services in excess of 13% ad
valorem.
Further, the restrictions on claim of input tax upto 19%
or 13% in respect of telecommunication services and
taxable goods/services respectively also appears to be
burdensome. It would be noted that currently the
general rate of sales tax on taxable goods is 17%
whereas the general rate of sales tax on various
taxable service is higher than 13% in all the Provinces
and the Islamabad Capital Territory. Such disallowance
of excess input tax would thus become part of the cost
of doing business in the province of Sindh which will
create adversity for the business and trade in Sindh as
compared to the rest of Pakistan
4.
Adjustment
Section 15
Section 15 of the Act provides for adjustment or
deduction of input tax, including refund arising as a
result of such adjustment or deduction. However, the
legislation did not provide a timeline for claiming such
refund, if any.
Now the Bill proposes to insert a proviso whereby
refund, arising as a result of adjustments or
deductions of input tax shall be made on yearly basis
in the month following the end of the financial year.
5.
Broadening of tax base
The Bill proposes to include the following services
under the Second Schedule with effect from 01 July
2016. It would be noted that these services are
already taxable in other Provinces and / or Islamabad
Capital TerritoryDescription of
Services
Tariff heading
Applicable
Rate
Chartered Flight
Services
9803.0000
13%
Services provided or
rendered by persons
9805.0000
-
6.
Tariff heading
Applicable
Rate
Public relations
services
9819.9200
13%
Cosmetic and plastic
surgery and
transplantations
9818.2000
13%
Visa processing
services including
advisory or
consultancy services
for migration, visa
application filing
services
9843.0000
13%
Debt collection
services and other
debt recovery services
provided or rendered
by debt collection
agencies or recovery
agencies or other
persons
9844.0000
13%
Supply chain
management or
distribution (including
delivery) services
9845.0000
13%
Definitions
Section 2
The expressions “Chartered Flights”, “Other
Consultants”, “Human Resources and Personal
Development Consultants”, “Visa Processing Advisory
and Consultancy”, “Supply Chain Management or
Distribution Services” have not been defined in the
Bill. However, the Bill proposes to explain the
following services under the definition clause of the
Act:
Cosmetics and Plastic Surgery
Cosmetics and plastic surgery includes the
services provided or rendered by any person, in
relation to aesthetic or cosmetic surgery or
plastic surgery like abdominoplasty (tummy
tuck), bletharoplasty (eyelid surgery),
mammoplasty, buttock augmentation and lift,
rhinoplasty (reshaping or nose), otoplasty (ear
surgery), rhytidectomy (fact lift), liposuction
(removal of fat from the body), brow lift, cheek
augmentation, facial implants, lip augmentation,
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forehead lift, cosmetic dental surgery,
orthodontics, aesthetic dentistry, laser skin
surfacing, hair grafting, hair transplant and such
other similar surgery.
Debt Collection Services and Other Debt
Recovery Services
Services provided by a person to a banking
company or a financial Institution including nonbanking financial company or any other body
corporate or a firm or a person, in relation to
recovery of any sums due to such banking
company or a financial institution including nonbanking financial company or any other body
corporate or a firm or a person, in any manner.
revenue collecting authorities about collection of
tax on services. Such conflict of interest has
adversely affected the business and trade
thereby forcing them to file multiple petitions
before the high courts of the country.
In a recent judgement passed by the Hon’ble Sindh
High Court various matters that are under dispute
between the Revenue collecting authorities, were laid
to rest. Some of the important decisions held in the
said judgement include·
Levy of Federal Excise Duty under the Federal
Excise Act, 2005 (the FE Act) in respect of
specified excisable services was ultra vires after
the promulgation of the provincial legislations for
levy of tax on services.
·
Terminals and ports fall within the Jurisdiction of
the Federation and therefore, it is the Federal
Government, and not the Provincial Government(s)
who can impose the tax thereon. As a result, levy
of Sindh sales tax on shipping agent, freight
forwarding, stevedore and ship management
services was declared unconstitutional.
Public Relations Services
These services include strategic counselling
based on industry, media and perception
research, corporate image management, media
relations, media training, press release, press
conference, financial public relations, brand
support, brand launch, retail support and
promotion, events and communications and crisis
communications.
Notification in the Official Gazette
The Bill proposes to insert a new definition
whereby the expression “Notification in the
Official Gazette” has been defined to mean a
Notification issued under the Act which shall be
effective from the day specified in the
Notification, irrespective of the fact when such
Notification is published in the Official Gazette.
The definition is stated to have a retrospective
effect from 01 July 2011. By virtue of the
definition, the Bill has laid to rest various
controversies whereby the application of
Notifications issued by the SRB or the
Government was put to challenge on the ground
that the Notification was published in the Official
Gazette at a later day then was provided under
the Notification.
Levy of FED post Eighteenth Amendment
Judgement of the Honorable Sindh High Court
Inspite of the Eighteenth amendment in the
Constitution of Pakistan, 1973 whereby, the
jurisdiction to tax goods and services was
entrusted with the Federal Government and
Provincial Governments respectively there has
been a difference in opinion between various
The said judgement has however, been suspended up
to 30th June 2016 with the object of providing an
opportunity to the Federal Government and Provincial
Government(s) to revisit their respective legislations
and if need be, file an appeal before the Supreme
Court of Pakistan.
It is however noted that no effect of this judgement
appears to be taken in the proposed Bill perhaps due
to the reason that the respondents may be preparing
to challenge the judgement before the Hon’ble
Supreme Court. Hence, the services at the terminals
and ports continue to remain classified as taxable
services under the Act.
On top of it, chartered flight services have been
classified as taxable services by virtue of the proposed
amendments in the Bill. It would be noted that travel
by air is a federal domain and is considered as an
excisable service under the FE Act. Such services are
also classified as taxable services under the Punjab
Sales Tax on Services Act, 2012 [PSTSA 2012] but
the levy thereof has been put to challenge by the
airlines before the Hon’ble Lahore High Court which
has granted an interim Stay Order against such levy.
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7.
Joint and several liability
Section 18
It has been a settled principle under the Indirect Tax
Scheme that if a registered person receives taxable
goods or services from another registered person,
with knowledge of or reasonable grounds to suspect
that some or all of the tax payable in respect of that
taxable supply or services provided would go unpaid
such registered person as well as the person providing
the taxable goods or service shall be jointly and
severally liable for payment of such unpaid amount of
tax.
The Bill now proposes to enhance the joint and several
liability to all categories of persons, whether
registered or not, receiving such taxable services from
a registered person. This effectively means that even
if an unregistered person receives any taxable service
from a registered person and has knowledge or
suspects that the tax in respect of such taxable
services would remain unpaid, the tax can also be
recovered from such person.
8.
Description
Commissioner can
issue a show cause
notice on account
of tax not paid,
short paid or for
determining the
minimum tax
liability.
27(1)
Retention &
Production of
Records &
Documents
Specifies the time
period for retention
of records and
documents.
5 years
10 years
47
Recovery of tax not
levied or short
levied
An officer of SRB
can issue a notice
where by reason of
inadvertence, error
or miscalculation,
collusion,
abetment, fraud
etc. any tax or
charge has not been
levied or short
levied / paid . This
section also covers
the recovery of
refund of tax which
is not due.
5 years
8 years
60(5)
Appointment of the
Appellate Tribunal
Specifies the time
period for the
appointment of a
Technical Member,
under lenient
conditions, by the
Government from
date of introduction
of the Act.
5 years
10 years
74
Removal of
difficulties
Specifies the time
period, from the
commencement of
the Act, for
5 years
8 years
Sales of taxable activity or transfer of ownership
Section 19
Now the Bill proposes that if the tax payable by person
remains unpaid, the amount of unpaid tax shall be the
first charge on the assets of the business and the
persons buying and selling the business shall be jointly
and severally liable for the payment of the tax.
Change in the period of limitation
Sections 23, 27, 47, 60 and 74
The bill proposes to enhance the period of limitation of
5 years for assessment of tax, retention of records,
recovery of tax, appointment of Member of Appellate
Tribunal and Removal of difficulties as per the
following table:
Section
23 (2)
Description
Assessment of tax
An officer of SRB
not below the rank
of Assistant
Existing
Time
limit
Proposed
Time
limit
5 years
8 years
Proposed
Time
limit
Section
Presently, sale or transfer of ownership of a business
which provides taxable services to another person as
an on-going concern, any sales tax chargeable on
taxable services or part thereof, shall be accounted for
and paid by the person to whom such ownership is
transferred.
9.
Existing
Time
limit
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Section
Description
issuance of an order
by the Government
for the purpose of
removing any
difficulty or for
bringing the
provisions of the
Act into effective
operation.
Existing
Time
limit
Proposed
Time
limit
It would be noted that such extension is primarily due
to the fact that the relevant provisions would have
become time barred due to efflux of time as the
effective date of commencement of the Act was 01
July 2011 and the period of 5 years will accordingly
expire on 30 June 2016.
withhold tax or fails to deposit the withheld or
deducted amount of tax in the prescribed manner.
13. Enhancement of exemption limits
Section 10
Although the Bill does not explicitly contain any
amendment for enhancement of exemption limits, it is
noted from the budget speech of the Provincial
Finance Minister and the salient features issued by
the SRB that the threshold in respect of exemption as
prescribed for certain categories of taxable services
will be enhanced through separate Notifications.
Availability of the enhanced exemption limits, if any,
will be applicable from 01 July 2016.
·
10. Filing of Returns
Sub-section (5) of Section 30
Section 30 deals with the matters relating to filing of
return. Sub-section (5) requires filing a separate
return in case of change in the rate of tax during a tax
period. However, due to online filing system, the
requirement envisaged under Sub-section (5) is now
redundant. Accordingly, the Bill now seeks to omit the
aforesaid Sub-section (5).
11. Assessment and recovery of tax
Sub-section (8) of Section 23 and Sub-section (6) of
Section 47
The relevant provisions of the Act empower the Board
to prescribe threshold and parameters for assessment
and recovery of tax. The Bill seeks to enhance the
powers of the Board to regulate the system of
assessment and determination of liability, including
the powers to transfer cases and grant extension of
time limit in exceptional circumstances.
12. Recovery of tax
Section 47
Section 47 of the Act, empowers the officer of SRB to
recover the tax from a person in case the tax is not
paid or is short levied or paid. However, under the
existing Scheme, no procedure for recovery of short
or non-withheld tax has been envisaged. The Bill now
proposes to introduced a new Sub-section (1B) in
Section 47 whereby an officer of SRB is empowered to
determine the amount in default and order its
recovery from the withholding agent who fails to
·
·
In respect of contractual execution of work (tariff
headings 9809.0000), contractors of building
(tariff heading 9814.2000) and construction
services (tariff heading 9824.0000), the existing
threshold, conditions and limitations are proposed
to be rationalized and simplified in a manner that
classification disputes are avoided.
In respect of internet and broadband services, the
prescribed exemption limit for non-business
household users, students and researchers will
also be enhanced upto 4 mbps speed and a
monthly bill not exceeding Rs.2,500.
The exemption threshold is proposed to be
enhanced from Rs.3.6 million to Rs.4 million in
respect of the following services:
Description of Services
Tariff
Heading
Restaurants
9801.2000
Caterers
9801.5000
Beauty Parlours, Beauty Clinic,
Slimming Clinic
9810.0000
Laundries and dry cleaners
9811.0000
Auto-workshops other than an
authorized service station
9820.1000
Workshops for electric or
electronic equipments or
appliances etc.
9820.3000
Car or automobile washing or
similar service stations
9820.4000
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SINDH DEVELOPMENT AND MAINTENANCE OF
INFRASTRUCTURE CESS
Schedule to Sindh Finance Act 1994
The Sindh Development and Maintenance of Infrastructure
Cess was introduced under Section 9 of the Sindh Finance
Act, 1994 and the rules made thereunder. The Cess was
imposed for facilitation and maintenance of infrastructure
in the province of Sindh. It is presently levied and collected
under the Sindh Finance Ordinance, 2001 as a percentage
of the total value of imported goods as assessed by the
Customs Authorities plus one paisa per kilometer upon their
entering or leaving the province of Sindh, through air or
sea.
The Bill now proposes to increase the rate of Cess as per
the below table:
Existing
Rate
Proposed
Rate
Up to 1,250 kilograms
1.00%
1.10%
Exceeding 1,250 kilograms but
less than 2,031 kilograms
1.01%
1.11%
Exceeding 2,030 kilograms but
less than 4,061 kilograms
1.02%
1.12%
Exceeding 4,060 kilograms but
less than 8,121 kilograms
1.03%
1.13%
Exceeding 8,120 kilograms but
less than 16,001 kilograms
1.04%
1.14%
Exceeding 16,000 kilograms
1.05%
1.15%
Net weight of goods
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STAMP DUTY
Sections 31, 73 and Schedule to the Stamp Act, 1899
Article
Furthermore, under Section 73, the current penalty for
obstruction or concealing of information may extend to
Rs.20,000 for obstruction and the higher of Rs.20,000 or
15% of the amount involved in case of concealment. The Bill
now proposes to enhance the penalty limit of Rs.20,000 to
Rs.30,000.
The Bill has also proposed the following amendments in the
Schedule to the Stamp Act,:
7
8
19
Title
Bill of Entry
including
goods or
any
document
relating to
goods
declaration
for the
purpose of
custom
clearance
Bill of
Exchange as
defined by
section 2(2)
not being
Bond, bank
note or
currency
note:
Where
payable
otherwise
than on
demand, for
every
Rs.1000/Or
part thereof
of the
Amount of
bill
Financing
document,
that is to say
any
Clause
-
-
(i)
Description
-
-
Where the
amount
does not
exceed
Rs.0.5
Existing
Proposed
Duty
Duty
Rs.500
Rs.1.50
Rs.1,000
0.3%
(Advalorem)
Power of
attorney as
defined by
section
2(21)
Description
Existing
Proposed
Duty
Duty
Million
(i-a)
Where the
amount
does not
exceed
Rs.1.00
Million
Rs.1,000
Rs.1,500
(ii)
Where the
amount
exceeds
Rs.1.00
Million, but
does not
exceed
10.00
Million
Rs.2,500
Rs.3,800
(iii)
Where the
amount
exceeds
Rs.10.00
Million, but
does not
exceed
50.00
Million
Rs.10,000
Rs.15,000
(iv)
Where the
amount
exceeds
Rs.50.00
Millions,
but does
not exceed
100.00
Millions
Rs.25,000
Rs.38,000
(v)
Where the
amount
exceeds
Rs.100.00
Millions,
but does
not exceed
300.00
Million
Rs.35,000
Rs.53,000
(vi)
Where the
amount
exceeds
Rs.300.00
Millions,
but does
not exceed
500.00
Million
Rs.50,000
Rs.75,000
(vii)
Where the
amount
exceeds
Rs.500.00
Million
Rs.100,000
Rs.150,000
(a)
When
executed
for the sole
purpose of
procuring
the
registration
of one or
more
Rs.25
Rs.100
Rs.3.00
27
0.2%
(Advalorem)
Clause
instrument
or set of
instruments
in the nature
of sale and
re-purchase
on mark-up
basis,
agreement
of letter of
hypothecati
on or
pledge,
mortgage,
memorandu
m of deposit
of title deed,
or deed of
floating
charge
executed in
favour of a
banking
company by
any of its
customers
under any
mode of
finance not
based on
interest, in a
single
transaction.
Currently, the fee payable to the Collector for his opinion on
the amount of duty chargeable on an instrument is
restricted to an amount not less than 50 paisa and not
exceeding Rs.5. The Bill now proposes to increase such fee
to an amount not exceeding Rs.200, while eliminating the
minimum fee limit.
Article
Title
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Article
Title
Clause
Description
Existing
Proposed
Duty
Duty
documents
in relation
to a single
transaction
or for
admitting
execution
of one or
more such
documents
(b)
When
authorizing
one person
or more to
act in a
single
transaction
other than
specified
cases
Rs.100
Rs.200
(c)
When
authorizing
note more
than five
persons to
act jointly
and
severally in
more than
one
transaction
or
generally;
other than
in specified
cases
Rs.200
Rs.500
(d)
When
authorizing
more than
five but not
more than
ten persons
to act
jointly and
severally in
more than
one
transaction
or
generally;
other than
in specified
cases
Rs.500
Rs.1,000
Rs.3,000
Rs.5,000
Rs.10 for
each
person
authorized
Rs.100 for
each
person
authorized
(ee)
When given
not for
considerati
on and
authorizing
the
Attorney to
sell any
immoveable
properties
(f)
In any
other case
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SINDH COMPANIES PROFITS (WORKERS’
PARTICIPATION) ACT, 2015
(a) Workers drawing average minimum
monthly wages as fixed by the Government
from time to time;
The Eighteenth Amendment introduced in the Constitution
of Pakistan, 1973 in the year 2010 inter-alia, devolved
labour related matters to provinces. Consequent to this, the
government of Sindh first enacted the Sindh Workers
Welfare Fund Act, 2014 (“Sindh WWF Act”) in May 2015.
Now the Sindh Companies Profits (Workers’ Participation)
Act, 2015 (“Sindh WPPF Act”) has been enacted.
(a)
(b) Workers drawing average minimum
monthly wages as fixed by the Government
from time to time but not exceeding Rs.
20,000;
(c) Workers drawing average minimum
monthly wages exceeding Rs.20,000.
General scheme of the Sindh WPPF Act:
The general scheme of the Act is similar to the
Companies Profits (Workers’ Participation) Act, 1968,
(“Federal WPPF Act”). The salient features are
summarized as under:
(i)
(iv) Definition of ‘Worker’:
The definition of “Worker” includes workers
employed by the contractor. "Worker" in relation
to a company is defined to mean an employee of
the company, including employed by or through
the contractor, who falls within the definition of
worker as defined in Clause (xxx) of section 2 of
the Sindh Industrial Relations Act, 2013, and has
been working for or in the company for a period
of not less than six months. It is pertinent to
note that the definition of worker as contained in
the Federal WPPF Act was amended via the
Finance Act, 2007 to include a worker employed
by or through contractors. This amendment
along with other amendments introduced via the
Finance Act, 2007 were challenged before the
Hon’ble Sindh High Court, which in the case of
Employers’ Federation of Pakistan, has ruled
that such amendments were not validly made.
The current definition of a ‘worker’ in the Sindh
WPPF Act is identical to the amended definition
of the Federal WPPF Act.
Applicable to whom:
The Scheme applies to all companies which are
engaged in Industrial undertakings as defined in
the Schedule to the Sindh WPPF Act similar to
the Federal WPPF Act. Under the Federal WPPF
Act, companies which employ 50 persons or
more are required to establish a Workers
Participation in Profits Fund. However, under the
Sindh WPPF Act, the Scheme applies to those
companies which employ 100 persons or more.
Another important feature of the Sindh WPPF
Act is that it has provided an option to
companies which operate more than one
industrial undertaking, to the effect that such a
company may approach the Government to seek
permission of the splitting up of the Fund
amongst various undertakings. This concession
would appears to resolve issues for those
companies which have more than one industrial
undertaking and their operations are not limited
to the province of Sindh. Such companies are
facing multiple issues in discharging their
liabilities under the Sindh WWF Act and
therefore, a similar provision is required to be
introduced therein.
(ii)
Rate of contribution:
Likewise the Federal WPPF Act, the rate of
contribution remains the same i.e. 5% of profit
for the year.
(v)
Maximum Share:
The maximum share a worker can receive is four
times of the minimum wages for unskilled worker
as given in the Schedule of Minimum Wages for
Unskilled Workers Ordinance, 1969.
(vi) Payment of leftover from annual allocation of
WPPF
Under the Sindh WPPF Act, the excess over the
profit allocable to workers under the Scheme is
required to be transferred to the Fund
established under the Workers Welfare Fund
Ordinance, 1971 (“WWF Ordinance”).
(iii) Eligible Workers to benefit from WPPF:
The wage categories for the disbursement of
benefits to the workers are as under:
Ernst & Young Ford Rhodes Sidat Hyder
Budget Briefing
11
(vii) Tax deductibility of allocation in the hands of the
company:
The Sindh WPPF Act like the Federal WPPF Act
duly provides that allocation made by a company
to the Fund shall be admissible for tax purposes.
However, the Income Tax Ordinance, 2001
needs to incorporate related references to
provincial levies enacted through different labor
laws in consequence of the Eighteenth
Amendment in the Constitution.
(b)
Retrospective application:
It may be recalled that the Sindh WWF Act has been
made effective retrospectively for income years
commencing on or after 31 December 2013. The
Sindh WPPF Act has also been deemed to be effective
from 01 July 2011. The retrospective applicability of
the Sindh WWF Act has caused a number of practical
issues not only for the taxpayers but also for the
Federal Board of Revenue (“FBR”) since earlier, the
FBR was empowered to administer the levy of Workers
Welfare Fund (“WWF”) under the WWF Ordinance. The
legal controversies arising therefrom are now being
taken up and the matter is currently subjudice at
various appellate fora. The retrospective application
of the Sindh WPPF Act is also likely to trigger similar
issues which would result in increasing legal cost of
the taxpayers specifically for Companies which have
already discharged the liability under the Federal
WPPF Act for periods from 01 July 2011 to the date
of enactment of the Sindh WPPF Act.
Ernst & Young Ford Rhodes Sidat Hyder