Sales Tax Facade — Let The Consumer Beware
The upturn in taxation proceeds has always been recognized to be a paramount challenge for any government of the day in Pakistan. The sluggishness of our tax-to-gross-domestic-product ratio (tax-to-GDP ratio) has widely been attributed to a range of intertwined factors which include the following:
- fragmented revenue administrations,
- generous and distortionary exemptions/subsidies,
- constricted tax bases,
- and the most important of all, weak enforcement by the authorities coupled with low compliance by taxpayers.
One of the primary agendas of the current government has been to improvise tax collection so one has to acknowledge that due to the pronounced emphasis on this, citizens of Pakistan have started talking about taxation, worrying about their liabilities and enquiring about their rights.
One area where certain corrective measures can be undertaken to increase the revenue of the government is the collection of sales tax from eateries and other services which fall within the scope of taxed services. The state of the economy has generally not affected the class of citizens who dine out frequently as these ‘foodies’ will always keep the restaurant business afloat. In the recent past, we have observed a wave of social media users and influencers question the sales tax charged on services by restaurants, which is approximately 7.5-16% of the entire bill, depending on the province. Sales tax is categorized as an indirect tax, meaning thereby that any entity which collects sales tax acts as an agent of the government and withholds the stipulated percentage of the total amount of the bill for the government. There was a debate which eventually faded like any other trend but left the public with opposing interpretations as to how one could determine whether the restaurant was rightfully paying the sales tax collected from the customers to the government.
Post the Eighteenth Amendment to the Constitution of Pakistan devolving powers to the provinces, one of the consequences of fiscal decentralization was that sales tax on services had become a provincial subject, therefore it fell under the jurisdiction of Sindh Revenue Board, Balochistan Revenue Authority, Khyber Pakhtunkhwa Revenue Authority and the Punjab Revenue Authority (PRA), respectively. For the purposes of this article, I shall explain the anomalies using the example of PRA. A restaurant is considered as a “service provider” and is governed under the Punjab Sales Tax on Services Act (PSTSA) 2012, a law which broadly deals with the levy of taxes on services provided, rendered, initiated, received, originated, executed or consumed in the province of Punjab.
A plethora of medium to top-tier eateries are indeed charging sales tax without having themselves registered or showing the same on their invoices in order to evade the requirement of mandatory record-keeping. This clearly amounts to theft as they are collecting from the consumer, sales tax on behalf of the government and pocketing it for themselves. Therefore, from the government’s perspective, a huge segment of the services industry is fraudulently depriving it of its due.
As a consumer, one should be aware as to the quantum and verification of the chargeable sales tax on restaurant bills. It is pertinent to mention that under section 30 of the PSTSA 2012, a registered person shall issue a numbered and dated tax invoice containing name, address and registration number of the service provider. Rule 69(2) of the Punjab Sales Tax On Services (Specific Provisions) Rules 2012, Chapter XIII addresses “invoicing” which clearly states that, “Every tax invoice, bill, voucher or cash memo shall contain the tax registration number of the restaurant.”
Confusion remained as to what a vigilant consumer should have been looking for in an invoice to be sure about sales tax. Was it the NTN (National Tax Number)? STRN (Sales Tax Registration Number)? Or the PST (Punjab Sales Tax)? In this regard, the Punjab Revenue Authority was gracious enough to issue a clarification on August 5, 2019, which basically stated that registered taxpaying entities had been issued with a unique PNTN number used for their identification. Restaurant owners are therefore mandated to issue an invoice containing name, address, registration number and the amount of tax.
Furthermore, one can also verify the registration of a taxpayer through the website https://e.pra.punjab.gov.pk/Registration/onlinesearchTaxpayer.aspx and file a complaint at firstname.lastname@example.org
Every person providing restaurant services in the province of Punjab, whether through a single outlet or multiple outlets, is mandated to obtain registration from the Punjab Revenue Authority. In cases where a restaurant has already been registered with the Federal Board of Revenue, it shall not be required to make a separate registration for the purpose of Punjab sales tax on services — in such a case, one will only obtain e-enrollment from the Authority through its website/e-portal where the registration number issued by the FBR shall be automatically prefixed with a capital “P” as per the procedure in vogue.
Furthermore, if restaurant owners fail to make an application for registration before providing any taxable services under PSTSA 2012, they may expose themselves to civil and criminal liability and shall be liable to pay a penalty of ten thousand rupees or five per cent of the amount of the tax they would have been liable to pay had they been registered (whichever is higher). In case of non-compliance with compulsory registration, the minimum penalty shall be ten thousand rupees. If any persons who are required to get registered under PSTSA 2012 fail to register within ninety days of providing taxable services, they shall further be liable, upon conviction by a Special Judge, to be imprisoned for a term which may extend to one year, or with fine which may extend to the amount of the tax they would have been liable to pay had they been registered, or with both.
It is high time that in furtherance of enhancing the economy of our country, we as citizens, consumers and business owners take collective responsibility to eradicate this malady and contribute towards digging ourselves out of this financial crunch.
The views expressed in this article are those of the author and do not necessarily represent the views of CourtingTheLaw.com or any other organization with which he might be associated.