Restaurants, cafes and bakeries

Tax on food businesses: sales tax, services tax, withholding and record keeping. Each answer below explains one point in plain words, works through an example, and links the exact section of the law it relies on.

• Can I adjust the income tax on my restaurant's commercial electricity bill?Section 235 tax on a commercial electricity bill is partly minimum tax and partly adjustable for sole owners and AOPs, and fully adjustable for a company.
• Does my restaurant have to collect advance tax on weddings and functions it hosts?Section 236CB makes restaurant, hotel and marriage hall operators collect 10% advance income tax on function bills, including food from an outside caterer.
• Are bun, rusk, sheer mal and vermicelli sold by a bakery taxed at the reduced 10% rate?Serial 87 of the Eighth Schedule taxes local supply of bun, rusk, sheer mal and vermicelli at 10%, but not when sold in Tier-1 bakeries and sweet shops.
• Can a bakery or sweet shop claim input tax on flour, sugar, ghee and packaging?How a registered Tier-1 bakery deducts input tax under section 7, what section 8 bars, the 90% cap in 8B, and why exempt flour and bread give no credit.
• Can a restaurant or bakery charge sales tax if it is not registered?The Sales Tax Act lets only a registered person or a retail tax payer issue a tax invoice, and tax collected that was not payable must go to the government.
• Can FBR post an officer at my restaurant or bakery to monitor sales?Section 40B of the Sales Tax Act lets the Board post an officer at a registered person's premises, and the Sales Tax Rules give restaurants monitoring duties.
• Can FBR seal my restaurant or bakery, and on what grounds?The Sales Tax Rules let FBR seal a Tier-1 food outlet for fake or unverified POS bills, 48 hours offline or not integrating. Who approves it and how it reopens.
• If my cafe accepts card payments, does that make it a Tier-1 retailer?The card machine test for Tier-1 was omitted by the Finance Act 2026. What still makes a cafe or bakery Tier-1, and why card payment still matters in Islamabad.
• Do I need an NTN or sales tax registration to run a home bakery or cake business?A home bakery meeting the cottage industry test in section 2(5AB) is exempt from sales tax and need not register, but income tax registration still applies.
• How can I check whether my restaurant bill is a genuine FBR invoice, and what happens if I report it?What the Sales Tax Rules say about verifying a restaurant bill with FBR, the details a report of an unverified invoice needs, and when a prize can be claimed.
• Is a restaurant meal charged federal sales tax as goods, or taxed as a service?Prepared food from restaurants and caterers is exempt from federal sales tax on goods, while restaurant services in Islamabad are taxed under the ICT Ordinance.
• Is bread, naan or roti from a bakery or tandoor exempt from sales tax?Serial 54 of Table-2 of the Sixth Schedule exempts all types of breads, nans and chapattis on local supply. What it covers, and what bakery items it leaves out.
• Is it mandatory for my restaurant to integrate its POS with FBR?Where the FBR POS integration duty for restaurants, cafes and bakeries comes from: section 23(6), Chapter XIV-A of the Sales Tax Rules and Islamabad law.
• Is my restaurant, cafe or bakery a Tier-1 retailer?Test your food outlet against each limb of section 2(43A) of the Sales Tax Act: chain unit, air-conditioned mall, power bill, turnover or Board notification.
• Why do Islamabad restaurants charge 5% tax when I pay by card but 15% in cash?Islamabad's services tax law charges restaurants and cafes 5% when a bill is paid by card, wallet or QR code and 15% when paid in cash. What the Schedule says.
• What is the penalty if my restaurant does not integrate with the FBR POS system?Penalties for a Tier-1 restaurant, cafe or bakery that fails to integrate its POS: Rs. 500,000 rising to Rs. 3 million, sealing, and a 60% cut in input tax.
• Do I deduct tax from my restaurant staff's salaries, and are free staff meals taxable?Section 149 makes a restaurant deduct tax from staff salaries above the taxable limit. Clause (53A) exempts free or subsidised food given in duty hours.
• Is the tax on my restaurant bill in Lahore, Karachi or Peshawar charged under FBR law?Why the tax on a restaurant bill outside Islamabad is not charged under the ICT Ordinance, and how federal sales tax treats prepared restaurant food.
• What sales tax does a bakery or sweet shop charge on cakes and mithai?How federal sales tax reaches cakes and mithai: Tier-1 bakeries and sweet shops charge the section 3(9A) rate, others pay through the electricity bill.
• Is income tax deducted from my payouts when I sell through Foodpanda or other delivery apps?How section 153(2A) and section 6A tax restaurant and home kitchen sales made through food delivery apps: 1% on digital payments and 2% on cash on delivery.
• How much tax is deducted when a franchise pays royalty or franchise fee to a foreign food brand?A franchisee paying royalty to a foreign food brand deducts 15% of the gross amount under sections 6 and 152. How franchise fees fit the royalty definition.
• What is the tax rate on catering services in Islamabad?Islamabad's services tax Schedule lists caterers and marriage halls twice: at 15% in Table-1 and at 5% with no input tax in Table-2. What each entry says.
• What must a restaurant or bakery receipt and menu show under the sales tax law?The invoice particulars in section 23, the FBR number and QR code from an integrated POS, six year e-invoice records, and the rule on showing tax on menus.
• When does a bakery or restaurant have to register for federal sales tax?Section 14 of the Sales Tax Act requires Tier-1 food outlets to register, excludes retailers paying through the electricity bill, and triggers returns.
• Does a company deduct withholding tax when it pays my restaurant for food or catering?Section 153 withholding applies when a company pays a restaurant by bank, but clause (46AA)(vii) excludes restaurants paid in cash for providing food.