Impact of recent amendments to Sindh Sales Tax Act on manpower services

The proposed amendments in the Sindh Finance Bill 2025, under section 4 and section 5, concerning the amendments in the SRB Act 2011, show weight that highly endangers the integrity and sustainability of the manpower Supply service. Such proposed amendments run counter to the established legal principles and leading case law cited by the Supreme Court of Pakistan with regard to the reimbursable expenses.

Service Charges for Supplying Manpower: Actual revenues under the contracts taken by the service providers from the clients.

Reimbursement of Manpower Salary on Actual Basis: A cost actually incurred by a service provider but reimbursed from the client according to contract between the two parties. This head is not actually a revenue but a mechanism for recovering costs.

What the Sindh government is proposing in its suggested amendments is to modify the treatment of these reimbursements and treat them as part or limb of the taxable service value. This is in direct contravention to the very clear stance, which the Supreme Court of Pakistan has taken, stating that such reimbursable expenses are not part of the taxable services or their value.

By coming up with this proposed amendment, the Sindh government is squarely contradicting an established case law of the Supreme Court of Pakistan wherein it has already been held that those expenses that are reimbursable cannot be valued in taxable service. By including those reimbursable expenses in the "gross amount charged" by way of services, Sindh government is violating judgment of the highest court, which seriously encroaches upon the rule of law and renders the law uncertain.

Putting reimbursable expenses into the tax base of the service puts an unfair economic tax burden on the service of manpower supply services. This may be for the fact that these services have very thin margins, and the service charges reflect the real economic value derived. Inclusion of salary reimbursements, since they are only passed through the service provider, creates an unfair cushion by inflating the tax base and disturbing the economic reality.

The proposed amendments are going to upset the working of the manpower Supply services. The service provider will either have to absorb the additional tax burden, which, by nature, will translate into a higher cost that they may have to pass on to the clients, thus losing some business, or absorb the additional incidence of the service tax and thereby reduce their competitiveness, leading to loss of jobs and affecting the economy at large.

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It becomes important now for the Sindh government to revisit these amendments in the light of legal precedents and economic realities. For this matter, we would like to draw the attention of the authorities towards the following:

Respect and abide by the judgment of the Supreme Court of Pakistan regarding reimbursable expenses. Recognize the nature of service charges and salary reimbursements in context to the distinct sector of manpower supply services. Incorporate stakeholder input to appreciate both the operational and financial impact created by these amendments. Thereby, it can be seen that the proposed changes in the SRB Act 2011 will very well undermine the viability of manpower supply services in general, and the provision of manpower services in Sindh. Government has to take fine balancing and just approach while not overburdening the service providers where tax system ought to reflect the real economic activities. Together, we must stand against these unjust amendments to protect the integrity and future of manpower supply services in Sindh.