Sales Tax on Services: Why Your Rate Depends on Which Province You Bill From

Indirect tax · Services

If you sell services in Pakistan, FBR is not your regulator. Four provincial authorities are — and they do not charge the same rate.

All Pakistan Taxes desk · 16 August 2026

One of the more consequential features of Pakistan’s tax architecture is that sales tax on
goods is a federal matter while sales tax on services belongs to the provinces. Different
legislation, a different regulator, a different rate and a separate return apply depending on
which side of that line your business falls.

New service businesses discover this late and expensively, usually after registering with
FBR and assuming the obligation is discharged. It is not.

Who collects what

Punjab is the outlier at 16%, a full percentage point above the other three. Telecommunication
services are treated separately and taxed considerably higher, at around 19.5% across the
provinces.

Standard rates are only the starting point

Quoting the standard rate tells you relatively little about what a particular business
actually pays, because the provinces apply reduced and tiered rates extensively within their
own schedules.

Sindh is the clearest example. Hospitals and clinics can fall as low as 3%, while beauty
parlours and comparable businesses face rates varying with turnover and compliance history,
running from around 5% up to the standard 15%. Restaurants, marriage halls, professional
services, insurance and advertising largely sit at the standard rate. Punjab, by contrast,
does not presently operate an exemption threshold for services taxable under its Sales Tax on
Services Act, 2012, though exemptions for certain hotel services have been under
consideration.

For most service businesses the difficult question is not what the tax costs.
It is which authority considers itself entitled to charge it.

Billing across provincial lines

This is where the system becomes genuinely awkward. A consultancy registered in Lahore
serving clients in Karachi can face competing claims from two authorities — one arguing
the service originated in Punjab, the other that it was consumed in Sindh. Both positions are
arguable under the respective statutes.

The provinces have never fully harmonised their treatment of origin against destination,
and there is no federal mechanism resolving the overlap. Businesses operating across more than
one province therefore register with multiple authorities and file separate returns as a matter
of routine, absorbing the compliance cost as the price of avoiding a disputed assessment
later.

Your client may be withholding the tax already

Larger corporate clients and government bodies frequently act as withholding agents on
services, deducting the tax from your invoice and depositing it themselves. This does not
remove your obligation: you continue to file, and the deduction is set against your liability
rather than replacing it.

Reconcile every remittance against the corresponding invoice. Where a client withholds but
fails to deposit, the shortfall appears against your account rather than theirs, and unpicking
it afterwards is your problem to solve.

Returns are monthly, not annual

Provincial services tax returns fall due monthly. That is a materially different rhythm from
income tax, and it regularly catches businesses that have budgeted for a single annual filing
and staffed accordingly.

Each authority operates its own penalty regime for late returns, and registration in two
provinces means two monthly filings rather than one combined submission. For a small
consultancy, that compliance burden is worth understanding before it arrives.

Getting registered

Registration is with the relevant provincial authority rather than FBR, although an NTN is
generally required first. For Punjab, our
PRA registration guide for service
businesses covers the process, and those without an NTN should begin with the
NTN guide.

Provincial services registration sits entirely separately from
federal sales tax registration for
goods. A business dealing in both will need both, and holding one confers nothing in
respect of the other.

What to get right

• Identify the province where the service is delivered or consumed, not merely where your
  office happens to be registered.
• Check whether your specific sector attracts a reduced or tiered rate before assuming the
  standard figure applies.
• Register with every authority with which you have a genuine nexus.
• File separately for each. There is no combined provincial return, and no authority accepts
  another’s filing.

Common questions