Pakistan's employees exempted from registering with Sindh Revenue Board as service providers under certain conditions

Regulations recently updated in Pakistan now require employers to withhold all of the sales tax due on commissions they pay to employees. This change obviates the need for employees to register with the Sindh Revenue Board (SRB) for sales tax purposes.

In Pakistan, the provincial sales tax law applicable in the province of Sindh is governed by the Sindh Sales Tax on Services Act, 2011, which defines "economic activity" as any activity involving the provision of services, with certain exemptions, such as services that employees provide to their employers.

However, in 2021, an amendment to the definition of economic activity required employees who earn commissions or fees from their employers to register for sales tax, presenting a registration challenge for the SRB.

To address this issue, the SRB updated its regulations on 10 May 2024, stipulating that withholding agents (employers) must deduct 100% of the sales tax on commissions paid to employees. Consequently, employees are exempt from registering if their employer withholds the full amount of the tax.

Note that this Tax Alert is general in nature and is not a substitute for detailed research or the exercise of professional judgment. Accordingly, no decision on any issue should be taken without seeking specific professional advice and further consideration.