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Taxation of Tourism Services in Pakistan

Taxation of Tourism Services in Pakistan

 

Definition of Tourism Services:

Tourism services refer to the services provided to tourists, including accommodation, food, transportation, and other related services. These services are provided by hotels, restaurants, travel agencies, and other tourism-related businesses.

 

Taxation of Tourism Services in Pakistan:

The taxation of tourism services in Pakistan is governed by the Federal Board of Revenue (FBR), which is responsible for collecting taxes on behalf of the government. The taxes applicable to tourism services in Pakistan include sales tax, income tax, and withholding tax.

Sales Tax:

Sales tax is a tax on the value of goods and services sold in Pakistan. The current rate of sales tax in Pakistan is 17%. The sales tax on tourism services is applied to the value of services provided by hotels, restaurants, and travel agencies.

Hotels:

Hotels are required to collect sales tax on the value of room charges, food and beverages, laundry services, and other services provided to guests. The sales tax rate on hotel services is 17%.

Restaurants:

Restaurants are required to collect sales tax on the value of food and beverages provided to customers. The sales tax rate on restaurant services is also 17%.

Travel Agencies:

Travel agencies are required to collect sales tax on the value of travel packages, air tickets, hotel reservations, and other related services provided to customers. The sales tax rate on travel agency services is 17%.

Income Tax:

Income tax is a tax on the income earned by individuals and businesses in Pakistan. The current rate of income tax in Pakistan ranges from 0% to 35%, depending on the income bracket.

Hotels:

Hotels are required to file income tax returns and pay income tax on their profits. The income tax rate for hotels in Pakistan is 29%.

Restaurants:

Restaurants are also required to file income tax returns and pay income tax on their profits. The income tax rate for restaurants in Pakistan is 29%.

Travel Agencies:

Travel agencies are also required to file income tax returns and pay income tax on their profits. The income tax rate for travel agencies in Pakistan is 29%.

Withholding Tax:

Withholding tax is a tax deducted at the source of income. The withholding tax rates applicable to tourism services in Pakistan are as follows:

Hotels:

Hotels are required to deduct withholding tax at a rate of 5% on payments made to non-resident individuals and companies for the provision of services, such as management fees, consultancy fees, and technical services.

Restaurants:

Restaurants are required to deduct withholding tax at a rate of 5% on payments made to non-resident individuals and companies for the provision of services, such as management fees, consultancy fees, and technical services.

Travel Agencies:

Travel agencies are required to deduct withholding tax at a rate of 5% on payments made to non-resident individuals and companies for the provision of services, such as management fees, consultancy fees, and technical services.

 

Examples of Taxation of Tourism Services in Pakistan:

Example 1: A tourist stays in a hotel for three nights and spends PKR 30,000 on room charges, food, and other services. The hotel will collect sales tax at a rate of 17% on the value of services provided, which will be PKR 5,100. The hotel will also pay income tax at a rate of 29% on its profits.

Example 2: A tourist visits a restaurant and spends PKR 5,000 on food and beverages. The restaurant will collect sales tax at a rate of 17% on the value of services provided, which will be PKR 850. The restaurant will also pay income tax at a rate of 29% on its profits.

Example 3: A tourist books a travel package through a travel agency for PKR 100,000, which includes air tickets, hotel reservations, and other related services. The travel agency will collect sales tax at a rate of 17% on the value of services provided, which will be PKR 17,000. The travel agency will also pay income tax at a rate of 29% on its profits. In addition, the travel agency will deduct withholding tax at a rate of 5% on payments made to non-resident individuals and companies for the provision of services.

 

Conclusion:

In conclusion, the taxation of tourism services in Pakistan includes sales tax, income tax, and withholding tax. The taxes are applied to the value of services provided by hotels, restaurants, and travel agencies. The rates of taxes vary depending on the type of service and the residency of the individuals or companies providing the services. Understanding the taxation of tourism services is important for businesses operating in the tourism industry in Pakistan to ensure compliance with tax laws and regulations.