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Sales Tax on restaurants

Thanks to various strike calls by traders and media coverage, it has increased the public interest in Taxation. Restoring the Tax rates on previously Zero-rated sectors have also shaken up drawing rooms and women got to discuss sales taxes. Few actions of the FBR and then reactions to it have made taxation a common talk these. Regardless of how accurate and factual the tax conversation is, it certainly has got more space in routine discussions than ever before. Customers took it to social media sharing the sales receipts the received, checking if they are charged rightfully and checking on the likelihood of their taxes reaching Govts. With all this happening, some non-factual things got the space and leading to confusions.
Clothes, Shoes and Restaurants are among the taxable places where people pay more attention to their taxes. Restaurants & Bakeries probably had the most difficult situation. Public activism on taxation is very critical in our community especially at the time when the concerned regulatory authorities lack the will and capacity for enforcement. The tax regime for Restaurant & Bakeries is a little complicated and all stakeholders must understand it correctly.
Restaurants operators (Owners, Managers & Staff) need to familiarize themselves with the requirements of the Sales Tax and the Sales Receipt. In various cases that I came across, restaurant & bakery operators are not aware of the requirements. The owners have to take responsibility for upgrading their invoice/receipt systems and educating their staff on the requirements. Our Restaurant & Bakeries do not practice to proactively provide a sales Receipt. They wait for the customer to ask for it. As a nation in our effort to increase our tax compliance, our stakeholders need to do their parts proactively. In Singapore, with one of the best tax collection systems, restaurant & bakery owners have even displayed notices that if we forgot to give you sales receipt, we will treat you with one of our products.

For public activism, the public must know what it can demand and what is provided is correct or defective. Recently there been cases where customers argue with the Restaurant Managers over the sales invoice. The public should know that Sales Tx on Provision of Restaurant & bakery services is a provincial subject and the competent authority in this matter is the Provincial Govt./Revenue Authority. For the service providers, they are required to be registered with the Provincial Revenue Authority for the purpose of Sales Tax collection. Following Punjab, KP & Sindh has also issued clarification for the stakeholders to understand what is required to be shown in the Sales Receipt by a Restaurant.

Provincial authorities currently are registering the Restaurants & Bakeries against the National Tax Number (NTN) issued to them by the Federal Board of Revenue. For a service provider business to collect Sales tax on services from the public having a valid NTN is not enough. It must also register with respective provincial authority for the Sales Tax. When an NTN holder business register with provincial Authority for Sales Tax registration. Authority adds a prefix to the NTN to make it a unique identifier within their jurisdiction. Sales Tax Number in Punjab will be identified as PNTN, in Sindh as SNTN, in KP as KNTN and in Baluchistan as BNTN. The numerical digits assigned to the particular NTN remains same even after registration with the Provincial Authority. A Restaurant chain operating in Lahore & Karachi having NTN: 1234567-8 will show Sales Tax number on its Lahore Receipt as “PNTN: 1234567-8” while in Karachi as “SNTN: 1234567-8” Unfortunately, some businesses are using just the word “NTN” instead of adding the required prefix of “P” in Punjab, “S” in Sindh and “K” for Khaybar Pakhtunkhwa and “B” for Baluchistan.
For the purpose of Sales Tax on Services within Islamabad capital territory (ICT), FBR is the concerned authority. The Sales Tax number within ICT is called “Sales Tax Registration Number (STRN)” and is issued by FBR. If the above Restaurant chain operates an outlet in Islamabad, then it is required to show STRN which is a 13-digit number.

To summaries, a business (Restaurant & Bakery, as under discussion today) which is not registered for the sales tax is not allowed to collect sales tax on the invoice. An invoice which does not bear a valid Sales Tax Number should not include any Sales Tax amount in invoice and if the Sales Tax amount is indicated, then the customers can demand an invoice with valid Sales Tax Registration Number. Mentioning only NTN, whether Registered with competent revenue authority or not, is not a substitute for Sales tax Number.
Sales Tax Number (on Services) is identified as PNTN in Punjab, SNTN in Sindh, KNTN in Khaybar Pakhtunkhwa, BNTN in Baluchistan and STRN in Islamabad.

For businesses, it’s important that they familiarize themselves with the Invoice requirements as stipulated in Sales Tax on Services Rules of all competent authorities and design their invoices accordingly. The common feature /requirement of an invoice from all the authorities include:
– Name, Address and the Sales Tax Number (PNTN/SNTN/KNTN/BNTN/STRN whichever applicable) of the service provider
– Value Exclusive of the Tax
– Rate and amount of the Tax
– Value Inclusive of the Tax
With any one of the above missing from the invoice will make it a defective invoice. Customers have the right to demand a correct invoice and refusal to provide an invoice in the manner designed in Sales Tax on Services Rules carries some punishments.

Tax compliance is not limited to Businesses and Customers. A much important role rests with the Revenue authorities. Authorities need to come out and proactively educate the public on the Taxes. Unfortunately, they are not doing much to educate the public. Given the ongoing momentum of the public in favour of tax collections, it’s the right time for the authorities to invest in awareness campaigns. Opening up opportunities for the customers to feedback and complaint against business providing faulty invoices are operating without Sales Tax Number will significantly improve the compliance culture.
Will authorities come out to catch the public momentum in their interest?

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Yasir Cheema

Yasir Cheema is a Civil Engineer by training and currently working as Resident Engineer for Surbana Jurong Pte. Ltd. in Singapore. He writes at this portal about Governance, Public policy, Institutional development, Construction practices, and procedures.

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