FBR clarifies sales tax on IT, IT Enabled Services

Collection of 16% sales tax from service provider falls within ICT’s jurisdiction

Farzana Ali Khan

 ISLAMABAD: The Federal Board of Revenue (FBR) has stated that Information Technology (IT) and IT Enabled Services had been subjected to Sales Tax at 16 percent since July 2015 under Islamabad Capital Territory (Tax on Services) Ordinance, 2001.
In a clarification about imposition of 16 percent Sales Tax on IT Services and IT Enabled Services which reduced the rate of Sales Tax on these services to 5 percent vide SRO 781 (I)/2018 dated 21st June, 2018.
The FBR stated that the scope and extent of IT Services was not defined under Islamabad Capital Territory (Tax on Services) Ordinance, 2001, adding that this was giving rise to dispute between Tax Authorities and Taxpayers’. 
It explained that the definition of IT and IT Enabled Services was available under the Income Tax Ordinance, 2001 and the same definition had been adopted for Sales Tax purposes vide SRO 77 (I)/2021 dated 21st January, 2021. 
The recent SRO had been issued as a clarification to reduce disputes on the definition of IT and IT Enabled Services and there was no new tax had been imposed.
The FBR expanded the scope of “IT services” and “IT-enabled services” for collection of 16 percent sales tax from the service providers falling within the jurisdiction of the Islamabad Capital Territory (ICT).
The FBR issued SRO 77 (1)2021 to amend SRO 495(1)/2016, dated the 4th July, 2016 relating to the levy of sales tax on services rendered or provided in the ICT.
Under the ICT (Tax on Services) Ordinance, 2001, 16 percent sales tax is applicable on services provided by software or IT-based system development consultants.
Under the SRO 77 (1)2021, the FBR will now also charge sales tax on “IT services” include software development, software maintenance, system integration, web design, web development, web hosting and network design; and “IT enabled services” include inbound or outbound call centers, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centers, data entry operations, locally-produced television programs and insurance claims processing.