ISLAMABAD: In a significant development, the National Tax Council (NTC) on Wednesday approved the much-awaited Place of Provision of Service Rules (PPSRs), a step towards harmonising general sales tax on services across the country and ultimately easing the doing of businesses.

Harmonising GST on services is a condition of the International Monetary Fund (IMF) to unlock funding to Pakistan stalled since December despite implementing several tough policy decisions, in­­cluding additional tax measures.

After approval of the respective provincial cabinets, the PPSRs will come into effect from May 1. The Sindh Revenue Board (SRB) suggested implementing the rules from July 1, while the other three provincial revenue authorities wanted the implementation from mid-April.

The government is in a hurry to get loans from multilateral lenders to shore up its falling foreign exchange reserves and the early implementation of the World Bank project could give some breaking space to Pakistan.

As a result, the early implementation of the rules will pave the way for the release of a $1 billion programme loan under the Resilient Institutions for Sustai­n­able Economy (RISE) programme of the World Bank. The programme loan is vital for Pakistan keeping in view the country’s balance-of-payments issue and a considerable delay in getting a $1.1bn tranche from the IMF.

The service rules are also a step forward towards facilitating ease of doing business.

An official announcement of the finance ministry said the NTC approved the recommendations of its executive committee regarding draft PPSRs. The approval will help achieve the prior actions for the World Bank-funded programme.

The meeting approved the exclusion of electric power transmission from the list of Federal Board of Revenue (FBR) goods and it will now be treated as a service. It was decided that it would be implemented from July 1 following the amendment to the Sales Tax Act through the Finan­­ce Bill in the upcoming budget.

The SRB has already proposed ru­­les for the provision of services re­­lating to electric power transm­i­­ssi­­o­­n. Other provincial revenue au­­­t­ho­rities will also adopt similar rules.

All provinces will have their own set of rules subject to the condition that there should be no material differences in these rules, as that is the aim of the entire harmonisation exercise.

As per agreement among provinces and the FBR, the advertising service and advertisement agents will be charged sales tax as per an agreed plan. GST on TV and radio ads will be based on the location of the beaming stations.

In the case of still media, GST will apply to the location of hoarding sites, while in the case of advertising agents, the tax will be collected based on the location of the agent’s office or branch.

In the case of different insurance services — life and health insurance, insurance of immovable property, insurance agent, re-insurance agent, re-insurance imported and re-insurance local — the GST on services will be based on the location of the office or branches of the insurance company providing services.

The provinces agreed that GST would apply based on the location of the franchise. They also agreed on a formula that half of GST will go to the province of origin on tra­nsportation of goods other than pe­troleum services provided by co­mpanies while the remaining half will go to the destination province.

In the case of non-companies, the GST will be based on the location of the booking office on transportation of goods other than petroleum services.

Half of the GST will be on the origin of transportation of goods through pipeline or conduit and transmission through the electrical grid, while 50pc tax will be ap­­plied to the destination province.

Published in Dawn, April 6th, 2023