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Taxation of Hospitality Services in Pakistan

Taxation of Hospitality Services in Pakistan

Taxation of Hospitality Services in Pakistan:

In Pakistan, the taxation of hospitality services is governed by the Federal Board of Revenue (FBR) and is subject to the Sales Tax Act, 1990, and the Federal Excise Act, 2005. The taxation regime for hospitality services is complex and includes various taxes and levies. In this article, we will discuss the taxation of hospitality services in Pakistan in detail, including definitions and examples.

Sales Tax on Hospitality Services:

The Sales Tax Act, 1990, governs the taxation of sales tax on hospitality services in Pakistan. According to the act, any person who provides taxable services is required to pay sales tax on the value of the services rendered. The current rate of sales tax on hospitality services is 17%.

 

The following services are considered taxable under the Sales Tax Act, 1990, and are subject to sales tax:

Accommodation Services: Any services provided by a hotel, motel, guest house, or any other establishment that offers accommodation facilities.

Food and Beverage Services: Any services provided by a restaurant, café, or any other establishment that offers food and beverage services.

Catering Services: Any services provided by a caterer or a catering company.

Event Management Services: Any services provided by an event management company, including planning, organizing, and managing events.

Tourist Services: Any services provided by a tour operator or a travel agent, including transportation, accommodation, and sightseeing.

Example: If a hotel charges PKR 10,000 for accommodation services, the sales tax payable would be PKR 1,700 (10,000 x 17%).

 

Federal Excise Duty on Hospitality Services:

The Federal Excise Act, 2005, governs the taxation of federal excise duty on hospitality services in Pakistan. According to the act, any person who provides taxable services is required to pay federal excise duty on the value of the services rendered. The current rate of federal excise duty on hospitality services is 8%.

The following services are considered taxable under the Federal Excise Act, 2005, and are subject to federal excise duty:

Accommodation Services: Any services provided by a hotel, motel, guest house, or any other establishment that offers accommodation facilities.

Food and Beverage Services: Any services provided by a restaurant, café, or any other establishment that offers food and beverage services.

Example: If a restaurant charges PKR 5,000 for food and beverage services, the federal excise duty payable would be PKR 400 (5,000 x 8%).

 

Provincial Taxes on Hospitality Services:

Apart from sales tax and federal excise duty, some provinces in Pakistan also levy additional taxes on hospitality services. These taxes vary from province to province and are governed by the relevant provincial taxation authorities.

For example, in Punjab, the Provincial Tax on Services (PTS) is applicable on certain services, including hospitality services. The current rate of PTS on hospitality services in Punjab is 5%.

The following services are considered taxable under the PTS in Punjab and are subject to provincial tax:

Accommodation Services: Any services provided by a hotel, motel, guest house, or any other establishment that offers accommodation facilities.

Food and Beverage Services: Any services provided by a restaurant, café, or any other establishment that offers food and beverage services.

Example: If a hotel charges PKR 10,000 for accommodation services in Punjab, the total tax payable would be PKR 2,200 (10,000 x 17% sales tax + 10,000 x 5% PTS).

 

Conclusion:

The taxation of hospitality services in Pakistan is complex and includes various taxes and levies. Any person who provides taxable services is required to pay sales tax, federal excise duty, and in some cases, provincial taxes on the value of the services rendered. The rates of these taxes vary depending on the type of service provided and the jurisdiction in which the service is offered.

It is important for hospitality service providers to understand and comply with the tax laws and regulations in Pakistan to avoid penalties and legal consequences. The FBR and provincial taxation authorities regularly conduct audits and inspections to ensure compliance with the tax laws and regulations.

Moreover, customers of hospitality services should be aware that these taxes are included in the final price of the services they avail. The prices of hospitality services may vary from province to province due to differences in tax rates, and it is important to consider the total cost of the services, including taxes, when making a purchase.

In conclusion, the taxation of hospitality services in Pakistan is an important aspect of the country’s tax system. It is essential for both service providers and customers to understand and comply with the tax laws and regulations to ensure a fair and transparent taxation system.