Is a restaurant meal charged federal sales tax as goods, or taxed as a service?

Federal sales tax on goods does not apply to a restaurant meal, because the Sales Tax Act, 1990 exempts prepared food supplied by restaurants and caterers. The tax you see on a restaurant bill is a tax on services. In Islamabad that is the Islamabad Capital Territory (Tax on Services) Ordinance, 2001. In the provinces it is provincial law, which this site does not hold.

What does the law say?

The goods side. Section 3(1) of the Sales Tax Act charges sales tax at eighteen per cent on taxable supplies of goods. Section 13(1) then says that, notwithstanding section 3, the supply or import of goods specified in the Sixth Schedule shall be exempt, subject to conditions the Federal Government may specify.

Table-2 of the Sixth Schedule is headed “Local Supplies only”. Serial 53 reads:

Serial	Description	Heading
53	Prepared food or foodstuff supplied by Restaurants and caterers	Respective heading

A footnote in the consolidated Act says serials 52 to 54 were added by the Finance Act, 2022. Note 1 to the Schedule says exemption is admissible on the basis of the description of goods in column 2, and the tariff headings are for reference.

The services side. Section 3(1) of the ICT 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. Serial 1 of Table-1, substituted by the Finance Act, 2023, has two parts:

Part	Who	Rate
1(i)	Hotels, motels, guest houses, farmhouses, marriage halls, lawns, clubs and caterers	Fifteen percent
1(ii)	Restaurants including cafes, food (including ice-cream) parlors, coffee house, coffee shops, deras, food huts, eateries, resorts and similar cooked, prepared or ready-to-eat food service outlets	(a) Five percent where payment is received through debit or credit cards, mobile wallets or QR scanning, with no input tax adjustment or refund; (b) Fifteen percent where payment is received in cash

How does it work in practice?

The two laws look at the same meal from different angles. The Sales Tax Act treats the food as goods and exempts it. The ICT Ordinance treats the restaurant as providing a service and taxes that service.

The exemption in serial 53 does not carry across to the ICT Ordinance. Section 3(2A) of the Ordinance applies only listed parts of the Sales Tax Act to services. From section 13 it lists sub-sections (2), (3), (6) and (7), and from the Sixth Schedule it lists serials 48, 147 and 163 of Table 1. Serial 53 of Table-2 is not on that list.

Section 3(1) of the ICT Ordinance also carries a proviso letting the Board require service providers in Table-1 and Table-2 to integrate with the Board’s computerized system for real-time reporting, from a date prescribed by general order.

Worked example (illustrative figures)

A family eats at a restaurant in Jinnah Super, Islamabad. The food and service total Rs. 8,000 before tax.

Federal sales tax on goods: serial 53 exempts the prepared food, so no tax at eighteen per cent under section 3(1) of the Sales Tax Act.

ICT sales tax on services, serial 1(ii):

Payment	Rate	Tax	Bill
Debit card	5%	Rs. 8,000 x 5% = Rs. 400	Rs. 8,400
Cash	15%	Rs. 8,000 x 15% = Rs. 1,200	Rs. 9,200

The difference of Rs. 800 comes entirely from the payment mode.

If the same Rs. 8,000 of food were supplied by a caterer at an event in Islamabad, serial 1(i) applies instead, and it sets fifteen percent without a card and cash split: Rs. 1,200.

What if …?

What if I order takeaway or delivery? Serial 53 covers prepared food “supplied by” restaurants and caterers, and serial 1(ii) covers services “provided or rendered by” restaurants. Neither text mentions dine-in, takeaway or delivery, and the law does not distinguish them. This page does not resolve how a particular takeaway order is treated.

What if the restaurant is in Lahore, Karachi or Peshawar? Section 1(2) of the ICT Ordinance says it extends to the whole of Islamabad Capital Territory, so its rates do not apply there. The tax on restaurant services in the provinces is provincial law outside this corpus. Serial 53 of the Sixth Schedule still exempts the food from federal sales tax on goods.

What if a bakery sells bread and cakes, not meals? Bread, nans and chapattis have their own entry at serial 54 of Table-2. Cakes and sweets are not in serial 53 or 54.

Common mistakes

• Calling the tax on a restaurant bill “18% GST”. The eighteen per cent in section 3(1) of the Sales Tax Act is on goods, and prepared restaurant food is exempt from it.
• Reading serial 53 as a full exemption for the diner. It exempts the goods, not the service tax charged under the ICT Ordinance or provincial law.
• Applying 5% to cash bills. Under serial 1(ii) the five percent rate is tied to card, mobile wallet or QR payment. Cash is fifteen percent.
• Using 5% for caterers. Caterers are in serial 1(i) at fifteen percent.

What to check in the official text

Read section 13 and Table-2 of the Sixth Schedule in the Sales Tax Act, 1990 as amended to 30 June 2026, including the Notes at the end of Table-2. Note 3 names serial 53 among entries to which Chapter 99 of the Customs tariff applies, without saying which table it means, so read it alongside Table-1, where serial 53 is omitted. Then read sections 1 and 3 and serial 1 of Table-1 in the ICT (Tax on Services) Ordinance, 2001 as amended to 30 June 2025. For a restaurant outside Islamabad, the provincial sales tax on services law is the place to look.