KPK Finance Act

Under the amended Section 3(1), the Act now provides that 'Any provision of service is a taxable service except such services as are explicitly listed in the First Schedule.' Previously, only listed services were taxable. Since IT services are not enumerated in the exempt First Schedule, they are now subject to the standard 15% rate under Section 9(1) or any differential rate specified in the Second Schedule. The transitional proviso states that services taxable under the old Second Schedule before July 1, 2025, remain taxable unless explicitly included in the new First Schedule.

Section 17(1)(c) modifies the transaction threshold: the previous 'payment of the amount for a transaction, exceeding value of fifty thousand rupees, excluding payment against a utility' is replaced with 'payment of amounts of one or more transactions made to the same person in one tax period where the aggregate of such amounts exceeds fifty thousand rupees including the amount of sales tax but excluding any payments made on account of a utility.' Section 39(1) introduces mandatory e-filing, requiring 'through an e-file.' Section 39(6) reduces the return filing period from 'six months' to 'one hundred and twenty days.' A new Section 35(1A) requires registered persons providing taxable services in other provinces to maintain records permitting reconciliation of provincial tax liabilities.

The document excerpt does not show any reduced rate entries for IT services in the Second Schedule. The Second Schedule excerpt covers telecom services at 19.5% and hospitality services at 5%-10%. The standard rate under Section 9(1) is 15% for all taxable services not specified in the Second Schedule. The negative-list approach means IT services attract 15% unless specifically exempted in the First Schedule, which they are not.

Section 2(aaa) substantially broadens the definition of 'Service' to explicitly include 'anything, which is not goods, and includes any act, performance, provision or facilitation of a facility, amenity, utility or advantage, carried out in the course of an economic activity... provided by any means, including but not limited to digital, electronic or online platforms.' Explanation-II clarifies that services involved in the supply of goods remain treated as services. This explicitly brings online and digital IT services within the tax ambit of the provincial sales tax on services.

The First Schedule lists 30 categories of exempt services. Relevant entries include: Item 1 (student hostel accommodation), Item 14 (basic research in physical sciences, chemistry, biology, biotechnology on non-commercial basis), Item 26 (education services provided by schools, colleges, and universities including tuition fees), and Items 17-25 covering various government, diplomatic, and non-profit services. Notably, commercial IT services, software development, IT consulting, and digital services are not enumerated in the exempt categories. A general note at the end states that exemptions granted through notifications shall remain in effect unless expressly rescinded.