Federal Capital: Majority of restaurants, eateries involved in ST evasion

ISLAMABAD: A majority of restaurants and eateries in the federal capital are involved in massive sales tax evasion since they collect 17 percent sales tax from their customers but do not deposit the same in the national kitty.

A survey conducted by Business Recorder revealed that only a few restaurants are integrated with the Point of Sale (POS) system of the Federal Board of Revenue (FBR).

However, the tax department has failed to register all potential restaurants with the POS system for collection of the due amount of sales tax recovered from their customers.

Some restaurants have used fraudulent techniques by displaying “credit card machine out of order” signs to avoid documented payment of sales tax. Similarly, dummy receipts are issued by other posh restaurants in Islamabad.

Many customers have reported bogus/fake invoices to the FBR, but there is no automated acknowledgement or action on such complaints. "If the FBR is unable to enforce the POS system at restaurants in Islamabad what would be the situation in other cities of the country?" question affected customers.

A large number of restaurants have adopted different techniques to evade sales tax.

First, the restaurants are reluctant to register with the FBR’s POS system. The restaurants are required to install approved fiscal electronic device and register all branches with the Board’s computerized system, from which they make supplies and shall also register each POS to activate the integration and record the sale on a real-time basis.

However, data communicated through the POS showed that most of the restaurants located in posh areas of Islamabad either transmit very low sale or no sale at all to the FBR.

In these cases, 17 percent sales tax is collected but is not deposited with the FBR.

Second, certain restaurants are using a parallel system of invoicing which causes loss to the national exchequer. If the consumer insists on an FBR invoice, the restaurant either issues a genuine receipt containing the sales tax invoice number or refunds 17 percent on the spot to avoid confrontation or complaints to the FBR.

Third, the restaurant is integrated with the FBR’s POS system, but the genuine invoice is not issued to the customer till he/she insists on being given a genuine invoice having the POS number.

Fourth, the restaurant issues a fake FBR-Invoice number to the customer paying 17 percent sales tax, but the invoice number is not verifiable with the FBR’s POS verification system.

Fifth, actual sales as well as sales tax payable is not shown in the sales tax invoices. The actual sales tax is not being charged from the clients/customers.

Sixth, sales tax collected on sales tax invoices is neither being deposited into the government exchequer nor accounted for in the sales tax records.

Furthermore, they said, several restaurants are not even registered with the sales tax department, which is a mandatory requirement under the sales tax law.

As compared to local hotels/restaurants, international food chains etc are predominantly documented and issue sales tax invoices.

When contacted, sources told Business Recorder that so far, the FBR’s POS system has registered only 4,500 retailers after a large-scale enforcement drive as well as denying input tax adjustment. The said retailers have hardly deposited Rs1-2 billion sales tax.

Under section 40B of the Sales Tax Act 1990, the FBR can depute Inland Revenue Officers at restaurants that are not integrated with the POS system, for monitoring their sales for payment of sales tax.

The deputation of tax officers at the business premises of restaurants requires a large workforce. Due to a limited workforce for enforcement, the FBR prefers to depute tax officers to monitor sales/turnover at business premises of big units or manufacturers.

For instance, the deputation of Inland Revenue officers at restaurants may result in the recovery of Rs1 million to Rs2 million from each restaurant. However, the monitoring of production and sales of large manufacturing units may result in the recovery of revenue to the tune of millions. Therefore, the FBR has preferred to depute tax officers where huge revenue potential is involved.

The Regional Tax Office (RTO), Islamabad is required to launch a crackdown against the restaurants that are involved in distortion of a monitoring and tracking system of taxable activities at the POS by electronic means.

In the past, the RTO’s officers have warned the restaurants to declare actual sales and ensure that no parallel system of invoicing is used, which causes loss to the national exchequer.

The strict monitoring of restaurants is necessary to make sure sales are recorded in the FBR’s system on a real-time basis through the POS and sales tax collected by the restaurants is deposited in the national treasury.

The Chief Commissioners are empowered to initiate criminal proceedings under Sales Tax Act, 1990, in case any restaurant is found involved in manipulation, they added.

Copyright Business Recorder, 2022