FBR slaps sales tax at 17% on supply of food stuff

FBR slaps sales tax at 17% on supply of food stuff

The Federal Board of Revenue (FBR) has instituted a significant change in the tax structure for the supply of food items by restaurants, bakeries, caterers, and sweetmeat shops, imposing a 17% sales tax.

The amendment was detailed in Circular No. 07 of 2022 issued on Thursday, explaining the modifications introduced in the Sales Tax Act, 1990, through the Finance (Supplementary) Act, 2022.

Until January 15, 2022, food, food items, and sweetmeats supplied by restaurants, bakeries, caterers, and sweetmeat shops were subject to a 7.5% sales tax, as outlined in Serial No. 64 of the Eighth Schedule of the Sales Tax Act, 1990. However, the recent amendment has omitted Serial No. 64, resulting in an increase in the sales tax rate to 17% under the Value Added Tax (VAT) regime.

The FBR clarified that the earlier tax rate of 7.5% was applicable with the condition that no input tax could be adjusted. With the recent change, these products will now fall under the 17% tax bracket, impacting the pricing structure of food items supplied by these establishments.

The VAT regime, introduced through the Finance (Supplementary) Act, 2022, aligns with broader efforts to streamline and modernize the taxation system in Pakistan. While this move is expected to enhance revenue collection, it may also have implications for businesses in the food service industry and impact consumer costs.

The FBR, in its communication, emphasized the continuation of the 16% tax rate for services mentioned under Serial No. 1 of the Schedule to the ICT Service Ordinance, 2001. This includes services provided by hotels, motels, guest houses, marriage halls, lawns, clubs, race clubs, and caterers. The 16% tax rate remains applicable to these services, ensuring consistency in the taxation of hospitality and catering-related activities.

This change in the tax structure for food supplies comes at a time when the government is actively working on fiscal reforms to improve revenue streams and address economic challenges. The move to increase the sales tax rate on food items from eateries and bakeries reflects a nuanced approach to tax policy, balancing the need for revenue generation with the potential impact on businesses and consumers.

Businesses in the food industry are advised to review and adjust their pricing strategies to accommodate the revised tax rates. Additionally, consumers may experience changes in the cost of food items as establishments pass on the increased tax burden. The FBR’s move underscores the dynamic nature of tax policies, which may evolve to align with economic conditions and fiscal objectives.

As stakeholders assess the implications of this tax adjustment, ongoing communication and cooperation between the FBR and businesses will be essential to ensure a smooth transition and minimize any disruptions in the food supply chain.