Contractors in Pakistan face withholding on many contract payments they receive, and owe provincial sales tax on the services they provide. Contracts often run across tax years and provinces. The issues below are the ones construction work raises.
The points where tax and accounting rules come into play are numbered.
Numbered points are explained below.
At: Bid and contract
Registering with the wrong province, or with only one, leaves sales tax unaccounted for where it is due. Construction services are taxable under provincial sales tax laws, including in Sindh and Punjab, and the province where the work is done usually decides which authority you register with.
We check each contract and, where you work in two provinces, the registrations you need in both.
At: Crew and subcontractors
A deduction missed when paying a subcontractor can be charged to you. A contractor that is itself a prescribed person must deduct tax when paying subcontractors and suppliers, and file withholding statements.
We check the deductions on your payments and prepare the withholding statements.
At: Progress billing
Tax is withheld from many contract payments you receive, and it can only be claimed with the certificates. Under section 153, a prescribed person paying for the execution of a contract deducts income tax from the gross amount, and for many contractors this deduction is a minimum tax.
We match certificates from every payer to your invoices so the tax is claimed in your return.
At: Retainage
On a contract that runs across tax years, profit in the accounts and profit for tax can drift apart. Revenue and costs on long contracts are recognised over the life of the contract, including retention money and mobilisation advances.
We reconcile the accounting and the tax treatment each year so the return agrees with the accounts.
Contract-by-contract records make it possible to match withholding certificates, retention and sales tax to each job.
Returns must reflect tax deducted under section 153 and any minimum tax, and sales tax returns must match invoices.
Withholding and provincial sales tax notices are common for contractors.
Construction companies are subject to statutory audit, and clients or lenders often ask for audited accounts.
For many contractors it is treated as a minimum tax, but the rules depend on who you are and who pays you. We check your position for each tax year.
Generally to the province where the service is provided, so a contractor working in both may need to register with SRB and PRA. We check each contract.