The tourism sector in Pakistan has witnessed significant growth in recent years, driven by natural landscapes, cultural heritage, and government-led tourism promotion efforts. From travel agencies and tour operators to adventure tourism, transport services, and hotel accommodations, tourism services now form a vital part of the national economy.
However, with rising commercial activity, the sector is also under increased scrutiny from tax authorities. Businesses involved in tourism must comply with federal and provincial tax regulations, including income tax, sales tax on services, and withholding tax obligations.
This article provides a complete overview of the taxation of tourism services in Pakistan, covering applicable taxes, exemptions, rates, and compliance responsibilities.
Regulatory Authorities
1. Federal Board of Revenue (FBR)
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Governs income tax under the Income Tax Ordinance, 2001
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Oversees withholding tax compliance
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Governs sales tax on goods (e.g., vehicles, souvenirs, travel gear)
2. Provincial Revenue Authorities
Responsible for sales tax on tourism-related services, including:
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Punjab Revenue Authority (PRA)
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Sindh Revenue Board (SRB)
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KP Revenue Authority (KPRA)
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Balochistan Revenue Authority (BRA)
Each province enforces its own rates and registration requirements for taxable services.
Types of Taxable Tourism Services
| Service Type | Tax Status | Notes |
|---|---|---|
| Travel agency & tour operator services | Taxable | All-inclusive packages, bookings, and arrangements |
| Tourist guide and interpretation services | Taxable | Including cultural or historical tours |
| Hotel, motel, and lodging services | Taxable | Room charges, food & beverage |
| Tourist transport services | Taxable | Chartered buses, car rentals, sightseeing vans |
| Adventure tourism (trekking, hiking, camping) | Taxable | Especially when organized commercially |
| Event management for tourism | Taxable | Weddings, festivals, cultural fairs |
| Online travel booking platforms | Taxable | Local aggregators and portals must register |
Income Tax on Tourism Businesses
Applicability
All tourism businesses, regardless of size, are subject to income tax under the Income Tax Ordinance, 2001.
Tax Rates
| Entity Type | Tax Rate |
|---|---|
| Companies | 29% (TY 2025) |
| Individuals / AOPs | Progressive slab rates (up to 35%) |
| Minimum Tax | 1.25% of turnover (Section 113) |
Allowable Business Deductions
Tourism businesses may claim tax deductions on:
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Salaries and commissions
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Vehicle and transport costs
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Accommodation and food expenses
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Marketing and digital promotion
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Tour supplies (maps, tickets, equipment)
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Software for booking and fleet management
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Fuel, insurance, and maintenance
Filing Requirements
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Annual income tax return (via FBR Iris portal)
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Wealth statement (for individuals)
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Advance tax payments quarterly (for companies)
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Maintain records of bookings, commissions, and tour costs
Sales Tax on Tourism Services
Tourism services are taxable services under all provincial sales tax laws. Businesses providing these services must register with the relevant provincial authority based on their operational base.
Taxable Services and Provincial Rates
| Province | Rate | Taxable Tourism Services |
|---|---|---|
| Punjab (PRA) | 16% | Tour operations, travel agents, lodging |
| Sindh (SRB) | 13% | Tour services, event organizers, transport |
| KPK (KPRA) | 15% | Adventure tours, transport, hotels |
| Balochistan (BRA) | 15% | Tour guides, car rentals, accommodation |
Note: Rates are subject to change based on annual finance bills.
Filing and Compliance
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Register for Sales Tax on Services (STRN) with the respective authority
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Issue sales tax invoices for each service
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File monthly sales tax returns (by 18th of every month)
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Deposit sales tax collected from customers
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Claim input tax adjustments on purchases (if providing taxable services)
Input Tax Claims
Tourism businesses can claim input tax on:
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Fuel, utilities, equipment
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Office rent and administrative costs
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Vehicles used for tour services
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Third-party vendor services (hotels, transport, food)
If both exempt and taxable services are offered, input tax must be apportioned proportionately.
Withholding Tax in the Tourism Sector
Tourism businesses may be deducted tax by their clients or may need to withhold tax when making payments.
Tax Deducted by Clients
Corporate clients and government departments may deduct withholding tax on:
| Payment Type | Section | Rate |
|---|---|---|
| Tour services | 153(1)(b) | 10% |
| Transport rental | 153(1)(a) | 4.5%–10% |
| Hotel bookings (on behalf of corporate) | 153 | 8% |
Tax Withheld by Tourism Companies
When tourism businesses make payments, they may need to deduct:
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Salaries: Section 149
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Rent: Section 155
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Payments to freelance guides or vendors: Section 153
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Utility bills (if over threshold): Section 235
Monthly withholding tax statements must be filed via FBR Iris and tax paid using CPRs (challans).
Special Considerations for Tourism Startups and SMEs
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Businesses operating online or via social media must still register for tax
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Unregistered freelancers offering tour services may face income tax notices
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Online platforms aggregating hotel/tour listings are liable for sales tax on commission/service fee
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Exported tourism services (e.g., foreign tourist packages paid in foreign currency) may qualify for 0% or exempt treatment (subject to FBR and PRA rules)
Exemptions and Incentives
Currently, there is no blanket exemption for tourism services. However:
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Inbound tourism services for foreign tourists may be eligible for reduced or zero-rated tax (if foreign exchange is received and documentary proof is provided)
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Government-approved tourism development zones may offer tax incentives or investment allowances
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Businesses located in AJK, Gilgit-Baltistan, or tribal areas may qualify for region-specific exemptions
Registration Requirements for Tourism Operators
| Requirement | Applicable To | Registration Authority |
|---|---|---|
| National Tax Number (NTN) | All | FBR |
| Sales Tax on Services (STRN) | If offering taxable services | PRA, SRB, KPRA, BRA |
| SECP Registration | For companies or firms | SECP |
| Licensing | From Tourism Development Authority | PTDC, TDCP, or Provincial Department |
| Chamber of Commerce | Optional but recommended | Regional Chamber |
Penalties for Non-Compliance
| Offense | Penalty |
|---|---|
| Non-registration with FBR/PRA | Rs. 100,000 or more |
| Late filing of income tax return | Rs. 2,500/month (up to Rs. 50,000) |
| Failure to deposit sales tax | Default surcharge + up to Rs. 50,000 |
| No tax invoice issued | Rs. 10,000 or more |
| Failure to deduct withholding tax | Equal to tax amount + penalty |
Non-compliance may also result in audit, seizure of records, or suspension of license by tourism authorities.
Tax Planning Tips for Tourism Businesses
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Register with FBR and relevant provincial authorities early
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Maintain clear records of local vs. foreign clients and services
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Issue sales tax invoices to clients to avoid disallowance of expenses
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Deduct withholding tax on all vendor payments
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Consult a tax advisor to assess eligibility for input tax adjustment
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Claim all eligible deductions for travel, lodging, marketing, etc.
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Submit timely returns and avoid filing defaults
Conclusion
Tourism services in Pakistan are fully taxable under both income tax and sales tax laws, with specific rules for travel agents, tour operators, transport providers, and hotel partners. As the tourism sector matures, compliance requirements are becoming stricter, and businesses must align their tax practices with legal expectations.
Proper registration, documentation, and timely filing not only prevent penalties but also help build financial credibility—essential for growth, bank financing, and foreign partnerships in the hospitality and travel ecosystem.
