IR Commissioners for levy of sales tax on banquet halls

Some Chief Commissioners of Inland Revenue have strongly recommended to the Federal Board of Revenue to impose sales tax on banquet halls of restaurants/hotels given on rent through a clear provision in the Sales Tax Act 1990 in coming budget (2011-12).
Sources told Business Recorder here on Monday that the tax department faced resistance from the owners of restaurants/hotels during audit, where plea has been taken that such banquet halls are exempted from sales tax. The taxation of banquet halls rented by such hotels has not been clearly mentioned by the FBR in the tax law.
The issue of the banquet halls given on rent has been raised during audit of restaurants/hotels where absence of a clear provision in the law has given opportunity to the owners of hotels etc to avoid sales tax payment on rent of such halls. The owners of hotels/restaurants have also argued that the sales tax and federal excise cannot be imposed on such halls catering due to absence of a clear provision in the law.
In view of the existing legal position, it is proposed that the banquet halls may be brought under the tax net and sales tax may be imposed on their rent as well as catering irrespective of the fact that catering is arranged by the customers themselves or is provided by the hotels/banquet halls.
One of the Chief Commissioners has informed the FBR that during the course of audit of various hotels/restaurants, it was observed that they also rent out their halls for banquets and functions and provide catering services to them. However, when asked for payment of sales tax on supply of catering, it was noticed that they take the plea that banquet hall are exempt from payment of sales tax and that they do not provide any catering. And that the catering is arranged by our customers themselves. This results in loss of legitimate sales tax and federal excise revenue.
In view of the existing legal position, it is proposed that the banquet halls may be brought under the tax net and sales tax may be imposed on their rent as well as catering irrespective of the fact that catering is arranged by the customers themselves or is provided by the hotels/banquet halls. In case there is no legal bar in imposition of such taxation, the FBR can impose sales tax or federal excise through amendment in the Sales Tax Act or Federal Excise Act.