Karachi’s 58 restaurants were authorized to collect almost double service tax

• The SRB says a limited number of restaurants are allowed to collect a higher tax.
• He says only 1,700 restaurants are registered with the Sindh tax authority.
• Developmental part of the SRB’s new operating tariff for the tax year 2024-25.

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

Initially, in the Sindh Budget for the financial 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 given permission to collect the 15% tax, with the aim of adjusting the inflow of tax payments to restaurants.

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

There are hundreds of thousands of restaurants in the province, but only 1,700 – most of them in Karachi – are registered with the board of revenue. Among them, luxury restaurants are few and far between.

Tax experts suggest that only those larger businesses with significant 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 required license.

“It is also important that only such restaurants have been allowed to charge 15% SST, whose POS pricing systems are duly integrated with the SRB system besides complying with the provisions of the Sindh Sales Tax on Services Act, 2011,” he said the council in a release.

This development is part of the SRB’s new operating tariff for the 2024-25 fiscal year, following the incorporation of amendments introduced through the 2024 provincial budget.

According to the notification, these new taxes apply to all restaurant services, including those provided by dining establishments in hotels, motels, guest houses and farmhouses.

It must be noted that news has been doing the rounds in various sections of the press suggesting that the SRB has withdrawn the lower service tax rate facility for all restaurants in Karachi.

The board in its official response dismissed such reports as unsubstantiated, saying they were probably aimed at creating doubts in the minds of the restaurant’s customers and were therefore denied.

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are made by customers through digital modes such as debit cards, credit cards, mobile wallets or QR scanning has been withdrawn.”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

The SRB clarified that the SST reduced rate facility in question “has not been withdrawn but is still in operation”.

“It is appropriate that restaurants desirous of opting for the standard rate of SST of 15% even in cases where payment is made through the aforementioned digital modes, are required to obtain permission from the SRB in this regard under Rule 42(1)( b) of the Sindh Sales Tax on Services Rules, 2011.”

Sindh Revenue also informed the customers that before patronizing any restaurant, they can check the application of SST rate either by visiting the SRB website or by requiring the restaurant to show the required written permission from the SRB.