Why do Islamabad restaurants charge 5% tax when I pay by card but 15% in cash?

The difference on your Islamabad restaurant bill comes straight from the Schedule to the Islamabad Capital Territory (Tax on Services) Ordinance, 2001. One entry, serial 1(ii) of Table-1, sets a five per cent rate for restaurant services paid by card, mobile wallet or QR code and a fifteen per cent rate for the same services paid in cash. The restaurant is not choosing the rate. The way you pay decides it.

What does the law say?

Section 3(1) of the Ordinance charges sales tax “at rates specified in column (4) of Table-1 of the Schedule” on the value of taxable services rendered or provided in the Islamabad Capital Territory. Section 3(2) says the tax is charged and levied as if it were sales tax under the Sales Tax Act, 1990.

Serial 1 of Table-1 has two parts:

Serial	Services covered	Rate (column 4)
1(i)	Hotels, motels, guest houses, farmhouses, marriage halls, lawns, clubs and caterers	Fifteen per cent
1(ii)	Restaurants including cafes, food (including ice-cream) parlours, coffee houses, coffee shops, deras, food huts, eateries, resorts and similar cooked, prepared or ready-to-eat food service outlets	(a) Five per cent where payment is received through debit or credit cards, mobile wallets or QR scanning, subject to the condition that no input tax adjustment or refund shall be admissible; (b) fifteen per cent where payment is received in cash

The footnote in the official text records that serial 1 and its entries were substituted by the Finance Act, 2023. The edition used here is amended to 30 June 2025.

Who gets the lower rate?

The five per cent rate attaches to the payment method, not to the size or type of restaurant. A small dera on the outskirts of Islamabad and a coffee shop in a Blue Area plaza both fall under serial 1(ii) if they serve cooked, prepared or ready-to-eat food. If the bill is settled by debit card, credit card, mobile wallet or a QR scan, the entry says five per cent. If it is settled in cash, the entry says fifteen per cent.

The five per cent comes with a condition for the owner: no input tax adjustment or refund. A restaurant cannot take the lower rate on card sales and also claim back sales tax it paid on its own purchases against those sales.

Hotels, marriage halls, lawns, clubs and caterers are listed separately in serial 1(i), which shows only fifteen per cent. The card rate in serial 1(ii) is not written into serial 1(i).

Worked example (illustrative figures)

A family eats at a restaurant in F-7, Islamabad. The menu prices of the food ordered add up to Rs. 8,000, and the menu states that tax is added at the till. The rates are those in serial 1(ii); the Rs. 8,000 is invented.

Paid by debit card:

1. Value of the service: Rs. 8,000
2. Tax at five per cent: 8,000 x 5 / 100 = Rs. 400
3. Bill total: 8,000 + 400 = Rs. 8,400

Paid in cash:

1. Value of the service: Rs. 8,000
2. Tax at fifteen per cent: 8,000 x 15 / 100 = Rs. 1,200
3. Bill total: 8,000 + 1,200 = Rs. 9,200

The difference is Rs. 800 on the same meal, entirely because of how the bill was paid.

What if I pay part in cash and part by card?

The Schedule describes payment “received through debit or credit cards, mobile wallets or QR scanning” and payment “received in cash”. It does not say how a split payment is to be treated. This page does not guess. Any Board order or notification on split payments is not part of the corpus used here.

What if the restaurant is outside Islamabad?

Section 3(1) charges tax on services “rendered or provided in the Islamabad Capital Territory”. A restaurant in Rawalpindi, Lahore, Karachi or Peshawar is not covered by this Ordinance. Restaurant services in the provinces are taxed under provincial sales tax laws, which this site does not hold, so their rates are not stated here.

Does the restaurant have to report card and cash sales to FBR?

A proviso to section 3(1), added by the Finance Act, 2025, says that from a date and in a manner prescribed by the Board through a general order, any service provider mentioned in Table 1 or Table 2 of the Schedule shall integrate its business with the Board’s computerized system for real-time reporting of provision of services. The date and manner depend on the Board’s general order, which is not reproduced in this corpus.

Section 3(3) also applies the Sales Tax Act, 1990 and its rules to the collection and payment of this tax, including registration, records, audit, enforcement and penalties.

Common mistakes

• “Five per cent is a discount the restaurant offers.” It is a statutory rate in serial 1(ii)(a). The restaurant does not set it.
• “The card rate applies to wedding catering too.” Caterers and marriage halls are in serial 1(i), which shows only fifteen per cent. See the separate page on catering in Islamabad for the Table-2 entry that also mentions them.
• “A restaurant on the card rate can still claim input tax.” The five per cent rate is subject to the condition that no input tax adjustment or refund is admissible.
• “This rate applies across Pakistan.” It applies to services in the Islamabad Capital Territory only.

What to check in the official text

Read section 3 of the Islamabad Capital Territory (Tax on Services) Ordinance, 2001 and serial 1 of Table-1 of its Schedule in the edition amended to 30 June 2025. Confirm that no later Finance Act has changed serial 1 after that date. For the integration requirement, the proviso to section 3(1) depends on a Board general order, so check whether one has been issued and from what date it applies.