Karachi's 58 restaurants authorised to collect nearly double service tax

• SRB says limited number of eateries allowed to collect higher tax.
• Says only 1,700 restaurants registered with the Sindh tax authority.
• Development part of SRB's new working tariff for tax year 2024-25.

KARACHI: The Sindh Revenue Board (SRB) has permitted 58 restaurants and hotels in Karachi to collect a 15% service tax instead of the previously 8% on digital payments, denying taxpayers a facility introduced earlier to promote documentation of economy.

Initially, in the Sindh budget for the fiscal year 2024-25 (FY25), the Sindh Sales Tax (SST) on restaurant services paid through debit and credit cards was reduced from 15% to 8%.

The SRB in a notification said that only a limited number of restaurants had been granted permission to collect the 15% tax, aimed at input adjustment of tax payments on restaurants.

Only those restaurants with a Point of Sale (POS) system are eligible to collect 15% tax. 

There are hundreds of thousands of restaurants in the province, but only 1,700 — mostly located in Karachi — are registered with the revenue board. Among these, the high-end eateries are few. 

Tax experts suggest that only these larger establishments with a major market share have been given the go-ahead to collect the higher service tax.

The notification said that currently, out of more than 1,700 restaurants registered with the SRB, only 58 had obtained the requisite permission.

"It is also pertinent that only such restaurants have been allowed to charge 15% SST, whose POS invoicing systems are duly integrated with the SRB system besides being compliant with the provisions of the Sindh Sales Tax on Services Act, 2011," the board said in a release.

This development is part of the SRB’s new working tariff for the tax year 2024-25, after incorporating amendments introduced through the provincial budget 2024.

According to the notification, these new taxations apply to all restaurant services, including those rendered by dining setups at hotels, motels, guest houses, and farmhouses.

It must be noted that news had been doing rounds in different segments of the press suggesting that the SRB has revoked the lower services tax rate facility for all the restaurants in Karachi.

The board in its official response rejected such reports as not based on facts, saying they were likely aimed at creating misgivings in the minds of the restaurant customers and were, therefore, denied.

“In a section of the press, it has been reported that the facility of reduced rate of the SST on restaurant services where payments are made by customers through digital modes i.e. debit cards, credit cards, mobile wallets or QR scanning has been withdrawn,” the board said in a clarification published on its website.

The SRB clarified that the said facility of reduced rate of the SST “has not been withdrawn but is still operative”.

“It is pertinent that restaurants that desire to opt standard rate of 15% SST even in cases where payment is made through aforesaid digital modes, are required to obtain permission from the SRB in this regard in terms of rule 42(1)(b) of the Sindh Sales Tax on Services Rules, 2011."

The Sindh tax apparatus also advised customers that before patronising any restaurant, they may check about the applicability of the rate of the SST either by visiting the SRB website or by demanding the restaurant to show the requisite written permission from the SRB.

Here's a list of restaurant/hotels that are allowed to collect 15% service tax: