EDITORIAL: The Sindh Revenue Board (SRB) has drawn mounting criticism, most recently from the Pakistan Tax Bar Association (PTBA), over its implementation of the digital payment incentive scheme introduced for restaurants in fiscal year 2024-25, and which has been retained for this year.
In a letter to SRB Chairman Dr Wasif Memon last week, the PTBA categorically stated that the scheme has been enforced in a highly discriminatory and inequitable manner.
What was initially framed as a progressive step towards encouraging digital transactions and greater tax documentation has devolved into a flawed, unfair system that undermines SRB’s original objectives.
As part of its broader fiscal measures for 2024-25, the SRB had raised the standard sales tax rate on restaurant services from 13 to 15 percent across the province.
Simultaneously, it also introduced a dual-rate system to encourage non-cash transactions: restaurants accepting debit or credit cards, mobile wallets or QR codes were to charge only eight percent sales tax on their sale, while cash payments would continue to attract the full 15 percent rate. This was a sensible step to incentivise digital payments, enhance documentation of tax receipts and the broader economy, improve revenue collection and curb cash transactions.
The idea wasn’t new. The Punjab Revenue Authority (PRA) had implemented a similar measure in 2021 with notable success, followed by the FBR in Islamabad.
The SRB’s version of the scheme, however, came with an inexplicable encumbrance that ended up defeating its original intent. Citing the goal of promoting POS integration, the SRB allowed around 73 already POS-integrated restaurants to keep charging the full 15 percent rate on digital payments. This inevitably created a glaring disparity within the restaurant sector.
If the goal was broader POS adoption, this benefit granted to certain restaurants should have been extended to others as well. But that didn’t happen, resulting in an uneven playing field and inhibited competition as a select few were granted a preferential edge, with newer or smaller establishments particularly disadvantaged.
The interaction of this flawed measure with input tax adjustments also created significant disparities.
All restaurants whether part of the dual-rate scheme or not, deduct the sales tax paid on their purchases (such as ingredients or equipment) from the tax collected on sales from customers.
However, eateries charging the full 15 percent rate generally have greater leeway to adjust their input tax, since they collect more tax from customers, while those charging eight percent on digital payments find themselves limited as under the general scheme of sales non-standard rates are not eligible for input adjustment. This creates an advantage for those outside the scheme.
Beyond the unequal treatment, this has also weakened the overall push for transparency, documentation, tax compliance and digitisation.
Just as importantly, the measure has also harmed consumers as those choosing to pay digitally are denied the tax relief that had originally been intended. In effect, the SRB has granted the option to opt out of the dual-rate scheme to restaurants, and not customers, who actually bear the tax burden.
It appears that political pressure is at play, with influential restaurant owners benefiting from exceptions carved out of the dual-rate scheme. This is unacceptable. For the scheme to be effective, the digital payment incentive must apply universally to all restaurants accepting non-cash payments.
Only then can its promise of fairness, consumer benefit and improved documentation be fulfilled. The SRB must also recognise that its approach has seriously damaged its reputation.
Unlike its federal counterpart, the SRB has long enjoyed a stellar reputation in both tax administration and collection. That standing mustn’t be compromised by unwarranted political pressures.
Copyright Business Recorder, 2025
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