Although there is consensus between the federal and provincial governments on putting off the collection of sales tax from restaurants until an agreement is reached, still sales tax notices are being served on restaurant owners by the Federal Board of Revenue (FBR).
Provincial revenue authorities have termed the imposition of sales tax on restaurants a contravention of the law.
The Punjab Revenue Authority (PRA) has penned a letter to the FBR in which it has requested the tax collection authority to stop the FBR’s field formations from collecting sales tax until a legal advice was sought on the matter. According to a copy of the letter available with The Express Tribune, the PRA apprised the FBR that all four provinces of the country found the imposition of sales tax on restaurants unconstitutional.
The provinces argued that restaurants fell under the category of services and according to the law the levy of sales tax on services was the constitutional right of the provinces alone, said the letter.
Quoting proceedings of the meetings held earlier between FBR officials and provincial revenue authorities, the letter pointed out that it was agreed between the two parties that support of the Law and Justice Division would be sought to ascertain the legal status of restaurants and whether they fell under the services category or were considered suppliers of commodities.
“It was also agreed that final decision taken by the Law and Justice Division will be implemented strictly,” it said. “Until then, the imposition and collection of sales tax on restaurants was postponed.”
Regardless of the decision, tax notices are being sent to the restaurants from the FBR’s field offices and restaurant owners are being asked to pay sales tax under the Sales Tax Act 1990.
The notices were causing anxiety among taxpayers and were also acting as a hurdle in the way of implementing the law, thus affecting the revenues, it said.
In the letter, the PRA expressed concern that if the FBR did not inform the field formations about the issue, then the move would dent the country’s revenues.
Furthermore, it warned that if the field formations continued to issue the notices to the restaurants, their owners might take the issue to court and stop paying taxes altogether.