Islamabad, July 23, 2023 – In a move to promote digital transactions and bolster tax compliance, the Federal Board of Revenue (FBR) has announced a significant reduction in the sales tax rate for restaurants in Islamabad.
Effective immediately, restaurants in the capital city will be subject to a reduced sales tax rate of 5 percent on their services, but with one important condition.
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According to the FBR’s notification, this reduced rate of sales tax will only apply if payments are made through debit or credit cards. The goal is to encourage the use of electronic payment methods, such as cards, mobile wallets, and QR scanning, while simultaneously discouraging the underreporting of sales and revenue.
By providing a special provision for digital payments, the FBR hopes to incentivize restaurant owners to opt for transparent and documented transactions. As a result, those restaurants that comply and offer digital payment options will benefit from the reduced sales tax rate of 5 percent. This represents a significant decrease compared to the standard 15 percent sales tax that was previously applicable.
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However, it’s essential to note that this reduced rate is applicable only to restaurants and similar establishments that offer digital payment options to their customers. For payments made through other modes, such as cash or other traditional methods, the standard 15 percent sales tax rate with input adjustment will continue to apply.
It’s important to mention that this reduced tax rate of 5 percent only pertains to standalone restaurants, cafes, ice-cream parlors, coffee houses, and coffee shops. In contrast, services provided or rendered by hotels, motels, guest houses, farmhouses, marriage halls, lawns, clubs, and caterers will still be subject to the standard 15 percent sales tax rate.
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Even in cases where restaurants operate within hotels, motels, or clubs, the reduced tax rate of 5 percent will apply only if specific conditions outlined by the FBR are met.
The FBR’s decision to lower the sales tax rate on digital payments for restaurants aims to create a more favorable business environment, boost tax compliance, and foster the growth of the restaurant industry in Islamabad. It is anticipated that this measure will lead to increased transparency, revenue collection, and overall economic growth.
As this policy takes effect, restaurant owners and customers are urged to adapt to digital payment methods to take advantage of the reduced sales tax rate and contribute to the country’s economic development.
