Tax experts have urged the Federal Board of Revenue (FBR) to restrain restaurants from collecting sales tax over and above the prescribed rate of 7.5% from the consumers. They have further sought a clarification from the FBR in consultation with the Provincial Revenue Authorities to avoid hardship and double taxation and/or multiplicity of proceedings being faced by the taxpayers, and to, against the spirit of law.

It may be noted that through Finance Act, 2019, a new Entry No.64 has been inserted in the Eighth Schedule to the Sales Tax Act, 1990 whereby sales tax on the prepared food, foodstuff and sweet meats supplied by restaurants, bakeries, caterers and sweetmeat shops, has been charged to sales tax at the reduced rate of 7.5% without input tax adjustment. Accordingly, the reduced rate of 7.5% is effective from 01.07.2019; however, the restaurants in Punjab are still charging sales tax at the rate of 16% against the spirit of law. Copies of few invoices of restaurants are attached. When confronted, the restaurant owners/managers stated that they are charging sales tax under the Punjab Sales Tax on Services Act, 2012 wherein the rate of tax is 16%, therefore, the advantage of reduced rate cannot be extended to the end consumers.

Muhammad Shahid Baig, Advocate Supreme Court and tax consultant has said that as per Article 77 of the Constitution of the Islamic Republic of Pakistan, 1973, no tax shall be levied for the purposes of the Federation except by or under the authority of an Act of Majlis-e-Shoora (Parliament).

He said the Article 142(a) of the Constitution provides that Majlis-e-Shoora (Parliament) shall have exclusive power to make laws with respect to any matter in the Federal Legislative List.

According to him, the Article 143 of the Constitution provides that if any provision of an Act of a Provincial Assembly is repugnant to any provision of an Act of Majlis-e-Shoora (Parliament) which it is competent to enact, then the Act of Majlis-e-Shoora (Parliament) shall prevail and the Act of the Provincial Assembly shall to the extent of repugnancy be void.

He said sales tax is chargeable on food supplied by the restaurants at the reduced rate of 7.5% without input tax adjustment vide Entry No.64 of the Eighth Schedule of the Sales Tax Act, 1990, which is to be treated as competent legislation of the Majlis-e-Shoora (Parliament) unless otherwise held by the Superior Courts, therefore, it shall prevail and the Provincial legislation to the extent of repugnancy shall be treated as void in terms of Article 143 of the Constitution.

Copyright Business Recorder, 2019