1. Hospitality and Event Management Services
- Hotels, Motels, Guest Houses, and Clubs: A 16% sales tax applies to services under PCT headings 9801.1000 and 9801.4000.
- Marriage Halls, Lawns, Pandal, Shamiana, and Catering Services: These services attract a 5% sales tax under PCT headings 9801.3000, 9801.5000, and 9801.6000. However, no input tax adjustment or refund is permitted.
2. Media and Advertising Services
- Television and Radio Advertising: Excluding government-sponsored public service messages, advertisements under headings 9802.1000 and 9802.2000 are taxed at 16%.
- Advertisements on Hoardings, Websites, and Pole Signs: These are also taxed at 16%.
3. Construction and Related Services
- General Construction Services: Subject to a 5% tax under headings 9824.0000 and 9814.2000, provided no input tax adjustments or refunds are claimed.
- Hydropower Projects under CPEC: Construction services specifically for hydropower projects are taxed at a reduced rate of 1%, with similar conditions.
- Property Developers and Promoters: These services are taxed at Rs. 100 per square yard for land development and Rs. 50 per square foot for building construction.
4. Consultancy Services
- IT and Software Development: Services under heading 9815.6000 are taxed at 16%.
- Technical, Scientific, and Engineering Consultants: A 16% tax applies to these services under heading 9815.5000.
- Human Resource, Market Research, and Credit Rating: These are also taxed at 16% under respective headings.
5. Professional Services
- Legal Practitioners and Corporate Law Consultants: Both categories are taxed at 16%.
- Accountants and Auditors: These services fall under the 16% tax bracket.
- Event Management, PR, and Training Services: A uniform 16% tax applies.
6. Personal Care and Lifestyle Services
- Beauty Parlors, Clinics, and Slimming Centers: These services attract a 5% tax under headings 9810.0000 and 9821.4000, with restrictions on input tax adjustments.
- Fashion Designers: Their services are taxed at 16% under heading 9819.6000.
- Health Clubs and Gyms: These services are taxed at 5%, provided no air-conditioning is installed and turnover remains below Rs. 3.6 million.
7. Transport and Logistics
- Courier and Cargo Services: These are taxed at 16% under headings 9808.0000 and 9804.9000.
- Intercity Transportation of Goods: Subject to 16% tax.
- Car/Automobile Dealers and Rent-a-Car Services: These services are taxed at 5% and 16%, respectively.
8. Miscellaneous Services
- Telecommunication Services: These are subject to a higher tax rate of 19.5%.
- IT-Enabled Services: A reduced rate of 5% applies to IT services.
- Debt Collection and Recovery Services: These services are taxed at 16%.
- Cleaning and Maintenance: These services attract a 16% tax under headings 9822.2000, 9822.3000, and 9822.9000.
Key Conditions and Exemptions
Many services are subject to specific conditions, particularly the prohibition of input tax adjustments or refunds. Additionally:
- Government-sponsored or public welfare advertisements are exempt from taxation.
- Specific exemptions apply to low-value construction projects and services associated with foreign grants or certain residential projects.
Favorable Tax Treatment for IPPs in AJ&K (Finance Act, 2018)
The Finance Act, 2018 introduced a beneficial 1% withholding tax on offshore supply contracts for Independent Power Producers (IPPs) situated wholly or partly in Azad Jammu and Kashmir (AJ&K).
Eligibility Conditions
To qualify for this reduced tax rate, IPP projects in AJ&K must have secured a letter of support from the Power Purchase Agreement Authority (PPIB). Furthermore, their Engineering, Procurement, and Construction (EPC) contract should have been executed and submitted to NEPRA for tariff determination before the enactment of the Finance Act, 2018. The offshore supply contractor is also required to have a permanent establishment in Pakistan, with their contract arrangement falling under a cohesive business operation as defined in the Income Tax Ordinance, 2001. This 1% tax rate constitutes the final tax liability for the offshore contractor.
Benefits of Reduced Withholding Tax
This lower withholding tax rate offers several advantages. It can significantly reduce the overall project costs for IPPs, enhancing their economic viability. This provision also serves as an attractive incentive for foreign investment in AJ&K’s energy sector. Ultimately, by supporting the development of IPPs, this measure can contribute to the economic growth of the region, creating employment opportunities and stimulating overall development.
Significance for Stakeholders
The AJK sales tax schedule reflects a balance between revenue generation and incentivizing strategic industries like IT, construction, and hospitality. Businesses and individuals involved in these services must comply with tax regulations while leveraging applicable exemptions to optimize operations.
