LAHORE: Construction companies working on public sector development projects across Punjab could stop work owing to provincial government’s indecision on whether it should deduct sales tax on services from contractors or from the provincial exchequer.
The confusion prevails among the contractors and the executing government agencies after the Punjab government withdrew an earlier exclusion given to government civil works, including those of the cantonment boards, from the Punjab Sales Tax on Services Act 2012. The exclusion was made under the Punjab Finance Act 2016 and is applicable from July 1.
However, the Punjab Revenue Authority (PRA) is serving notices to contractors of ongoing and new civil works (without foreign aid) for payment of 16pc sales tax from July 1.
An informed source told Media on Wednesday the government agencies like Public Health Engineering Department, offices of district coordination officers and development authorities had started consulting the Punjab finance department and the PRA about the collection of sales tax from ongoing public works.
However, most contractors are reluctant to pay sales tax from their own pockets and expecting the provincial government to pay it from its own coffers.
The source said officials from districts of Lahore, Faisalabad and Bahawalpur recently approached some government departments concerned to clear the confusion and inform the PRA that they could discontinue services if this situation persists.
“It’s quite surprising that the government has lifted the exemption despite the fact that contractors usually get 10 per cent profit on the estimated cost of any project,” the source said. “How can a contractor pay 16pc extra sales tax on any project? The government will ultimately have to pay the tax from its own pocket, which will increase the cost of projects.”
Under the Annual Development Programme 2016-17 worth Rs550billion, the departments with civil works potential are water supply (Rs45bn), infrastructure development (Rs158.2bn), roads (Rs79bn), irrigation (41bn), energy (Rs9bn), public buildings (Rs11.5bn), urban development (Rs17.7bn), transport (Rs92.3bn), planning and development (Rs10.75bn) and development of tehsil municipal administrations (Rs15bn).
When contacted, PRA Chairman Dr Raheal Ahmed Siddiqui said the authority started withholding 16pc sales tax from contractors of ongoing and new civil works from July 1 this year. However, the authority had no bifurcation of sales tax collection from private and public works during July 2016, he said.
He said the exclusion would help the government to document service providers associated with public projects and identify their undisclosed private projects. He said the PRA had no such information about halting of civil works.
In addition, a spokesman for PRA said the Deputy Commissioner (Withholding) Enforcement had been directed to write letters to all government agencies and contractors concerned about withholding of sales tax.
He said the contractors were officially bound to pay the tax and any agreement of new contract would be decided at PC-1 stage.
The spokesman added that progressive payments were made on construction projects under withholding tax over a period of time and contractors working on civil works after July 1 would have to pay the tax.
The decision had been taken at chief minister’s level, he said, adding that the PRA would deduct sales tax from unregistered conractors at the time of payment.
A senior official from the provincial finance department told Media the department had no role in determining the withholding tax as it was the domain of the PRA.
