A sales tax official confirmed to Business Recorder that the FBR wanted immediate registration of potential guesthouses, marriage halls and caterers. The FBR data analysis has showed that most of the guest houses, marriage halls and caterers are not registered with the sales tax department. This also reflects poor enforcement at the level of field formations where sales tax officials have ignored such a huge potential sector.
The guest houses, marriage halls and caterers are earning huge profits with extraordinary turnover on daily basis, but these units are still out of the tax net. The FBR has launched an enforcement exercise to ensure registration of these units without further delay, sources said.
The FBR has also asked the collectors of sales tax to explain that why such a large number of guest houses, marriage halls and caterers are still not registered with the sales tax department. Collectors would have to justify that why a large number of hotels and restaurants are still not registered despite repeated instructions of the FBR/Members Domestic Operations, North/South, FBR directive added.
Sources said that the restaurants are covered within the category of manufacturers and liable to registration falling within the sales tax registration threshold of Rs 5 million. The guest houses are covered under the definition of hotels. The guest houses are working like hotels and providing services to their customers. Even if guest houses are service providers, they could be registered with the sales tax department where annual sales are over Rs 5 million.
The marriage halls were excluded from the sales tax in the past through amendments in the provincial sales tax ordinances. The potential marriage hotels or guest houses may be registered with the sales tax department in case they have declared their annual sales over and above Rs 5 million in the income tax returns. On the other hand, if marriage halls and guest houses have declared annual sales below Rs 5 million in the income tax return, than how the sales tax department can legally register these units with the sales tax department?
Sources said that the FBR has yet not provided any data to the collectors of sales tax where marriage halls, guest houses and hotels have declared annual sales more than Rs 5 million in their income tax returns and the same are not registered with the sales tax department. To register them, the FBR should provide data where over Rs 5 million annual turnover was declared by marriage halls, guest houses and hotels in their income tax returns.
In case of restaurants, having valid National Tax Numbers (NTNs), most of them have shown sales below Rs 5 billion in the income tax returns. In such cases how the field formations would register such restaurants with the sales tax department where annual sales below Rs 5 million has been accepted by the income tax department. To register such restaurants with the sales tax department, they have to revise their income tax returns to declare sales of Rs 5 million or more for sales tax registration purposes.
As far as the caterers are concerned, such caterers are taxable but they are supplying food items to marriage halls, which were excluded from sales tax in the past. The question arises, who would pay sales tax in such cases where marriage halls cannot recover sales tax from their customers? When marriage halls were excluded from the purview of sales tax, most of the caterers had stopped filing their sales tax returns on assumption that they are exempted from sales tax.
However, the caterers have been engaged in taxable activities and liable to pay sales tax. As these caterers have been engaged in providing taxable activity, they should file their sales tax returns and also pay the due amount of taxes on supplies made in the past.
In some cases, sales tax officials have used powers under section 40B of the Sales Tax Act, 1990 to check their actual turnover and sales by deputing staff at their business premises. It is important to mention that the FBR enforcement plan issued to the field formations has not specified sales tax registration of guesthouses, marriage halls and caterers.
Interestingly, enforcement plan focused on registered of companies, small and medium business houses, wholesalers, distributors, hotels/restaurants and bakeries/confectioneries. Now, the FBR has decided to register these high revenue non-compliant units particularly guesthouses, marriage halls and caterers and bring them into the tax net at any cost, sources added.