ISLAMABAD: The government has taken a significant documentation measure by allowing credit/debt card payments at a reduced sales tax rate of five per cent in restaurants/eateries.

Under the Finance Act, 2023, a lower rate of five per cent sales tax would be charged on dining out and credit or debit card payments. Among other documentation measures, the said decision would also be instrumental in discouraging cash payments and cash transactions at restaurants. Now, the restaurants would not be able to retain the digitally paid sales tax by the consumers.

Official sources told Business Recorder that the decision of the FBR has been implemented from July 1, 2023 which would encourage digital payments and encourage consumers to conduct documented transactions. The restaurants would be bound to collect the reduced rate of sales tax of five per cent in cases where the customers prefer to make payments through credit or debit cards.

On digital payments: services tax on restaurants in ICT reduced in federal budget

The move would also encourage voluntary compliance of the general masses to use the debt and credit cards payments at a lower rate of five per cent. However, the FBR would also ensure to enforce the said documented measure through its field formations.

The reduced rate of five per cent tax included services provided by restaurants including cafes, food (including ice cream) parlours, coffee houses, coffee shops, deras, food huts, eateries, resorts, and similar cooked, prepared or ready-to-eat food service outlets, etc.

The tax rate has been set at five per cent where payment against services is received through debit or credit cards, mobile wallets, or QR scanning subject to the condition that no input tax adjustment or refund shall be admissible.

On the other hand, 15 per cent sales tax would be applicable where payment is received in cash at the restaurants.

Copyright Business Recorder, 2023