Restaurants, newspaper advertisements: PRA authorised to levy, charge, collect ST

The Punjab government on Saturday authorised the Punjab Revenue Authority (PRA) to levy, charge and collect Punjab sales tax on restaurant services, advertisements in newspapers/periodicals other than classified advertisements (but including advertisements on hoarding boards, pole signs and sign boards) and franchise services with effect from October 06, 2012 in terms of section 5 of the Second Schedule of the Punjab Sales Tax on Services Act, 2012.
Previously, FBR was collecting Federal Excise Duty (FED) on franchise services and print media advertisements etc. It was also collecting Federal Sales Tax on restaurants (deeming it as supply of cooked foodstuff). The Punjab Finance Department has issued a notification NoSO (TAX) 1-9/2011 on Saturday regarding transfer of services from federal excise/sales tax to Punjab sales tax regime, sources in the Punjab Revenue Authority (PRA) told Business Recorder.
Sources said that the PRA had written a letter to the FBR Chairman also, drawing his attention towards the issue and requesting immediate disconnection of collection of above mentioned taxes from restaurant services, advertisements in newspapers/periodicals other than classified advertisements (including advertisements on hoardings boards, pole signs and sign boards) and franchise services.
PRA in his letter said under Chapter 98 of Pakistan Customs Tariff as adopted by Sindh and followed by Punjab, restaurants are classifiable as services (PCT heading 9801.2000). Internationally, restaurants are treated as services for consumption taxation purposes. Even historically in Pakistan, restaurants have been treated as services for the purpose of Central excise duties. The Law and Justice Division, Government of Pakistan has vide its advice circulated in FBR's letter No1(3) FED/2007, dated July 25, 2009, confirmed the status of economic activity of restaurants as services. Thus, there is no classification dispute in respect of restaurant services so far as provincial sales taxation is concerned. Hence, Punjab sales tax has been levied on restaurant services in place of Federal sales tax.
In view of the above, FBR is requested to kindly take necessary measures to discontinue receipt/collection of Federal excise duty on franchise services and print media advertisements other than classified ads but including advertisements on hoarding boards, pole signs and sign boards and collection of Federal sales tax on restaurant services with effect from October 6 this year to the extent of the province of Punjab, the letter concluded.