Karachi, July 20, 2024 – The Sindh government has imposed a 15 percent sales tax on services provided by restaurants in the province. The Sindh Revenue Board (SRB) has announced the new working rate for the fiscal year 2024-25, reflecting the changes introduced through the Provincial Finance Act, 2024.

This new tax measure covers all restaurant services including those provided by establishments in hotels, motels, guest houses and farm houses. However, the Sindh government has introduced a reduced rate of 8 percent for sales tax for specific scenarios. The reduced rate is applicable to restaurant services where payments are made through debit or credit cards, mobile wallets or QR scans. Notably, no input tax credit or adjustment is allowed under these circumstances.

The SRB notification also highlights exemptions from this sales tax for certain restaurants. Specifically, restaurants with a turnover of up to Rs 2.5 million in a financial year are exempted from the sales tax, provided they do not meet certain criteria. The exemption does not apply to:

1. Restaurants that have air conditioning during the financial year or that are located in shopping centers or squares with air conditioning.

2. Establishments within the buildings, on the premises or within the grounds of hotels, motels, boarding houses, farms or clubs whose services are already subject to sales tax.

3. Restaurants providing services on the premises, in the halls or on the lawn of hotels, motels, boarding houses, farms, wedding venues or clubs subject to sales tax.

4. Franchisors or franchisees.

5. Restaurants with multiple branches or more than one branch in Sindh.

6. Institutions whose total utility bills (gas, electricity and telephone) in a particular month during a financial year exceed Rs. 40,000.

The imposition of this tax is part of the Sindh government’s broader strategy to increase provincial revenues and streamline tax compliance. By introducing a tiered tax structure, the government aims to encourage digital payments and ensure greater transparency in transactions. The new tax regime is expected to have a mixed impact on the restaurant sector, with smaller establishments benefiting from turnover-based exemptions while larger, more established businesses will get the full 15 percent rate.

Restaurant owners and stakeholders in Sindh are now required to align their accounting and payment systems with the new tax rules. The SRB has urged all affected businesses to comply with the rules in a timely manner to avoid penalties and disruptions to their operations. As the province goes through these fiscal changes, the long-term effects on consumer behavior and the growth of the hospitality sector remain to be seen.