Can a restaurant or bakery charge sales tax if it is not registered?

A restaurant or bakery that is not registered cannot lawfully issue a sales tax invoice under the Sales Tax Act, 1990. The Act reserves the tax invoice for registered persons and persons paying retail tax. If a business still collects tax that it was not entitled to charge, the Act does not let it keep the money: section 3B requires it to be paid over to the Federal Government.

What does the law say?

Three provisions work together.

• Section 23(2) says that no person other than a registered person or a person paying retail tax shall issue an invoice under section 23. Section 23(1) is the provision that requires a registered person to issue a tax invoice showing, among other things, the supplier’s name, address and registration number and the amount of sales tax.
• Section 3B(1) says that any person who has collected any tax or charge that was not payable, or that was more than the amount actually payable, and passed its incidence on to the consumer, shall pay the amount so collected to the Federal Government. Section 3B(2) treats that amount as an arrear of tax, and says any claim for refund of it is not admissible, notwithstanding any law or judgment of a court. Section 3B(3) puts the burden of proving whether the tax was passed on to the consumer on the person who collected it.
• Section 14(1) lists who must register, including a manufacturer not running a cottage industry, a retailer liable to pay sales tax (other than one paying sales tax through the electricity bill), an importer, and a wholesaler, dealer or distributor.

The definition in section 2(25) adds a twist. A “registered person” means a person who is registered or is liable to be registered. Its proviso says a person liable to be registered but not registered is not entitled to any benefit available to a registered person under the Act or its rules. The Act does not spell out how that definition bears on section 23(2), so this page does not draw a conclusion from it.

How does it work in practice?

For a customer, the practical point is that a bill showing an amount of “sales tax” should come from a business that holds a sales tax registration number, which section 23(1)(a) requires on a tax invoice. The separate page on verifying a restaurant bill covers the other particulars.

For an owner, collecting tax without registration does not create a benefit. Section 3B makes the money payable to the Federal Government, and the proviso to section 2(25) denies a person who should have registered but did not the benefits of a registered person.

Worked example (illustrative figures)

A bakery in Gujranwala is not registered. Over a month it adds “sales tax” to customers’ bills and collects Rs. 45,000 this way. These figures are invented.

1. Tax collected from customers: Rs. 45,000.
2. Under section 3B(1), that Rs. 45,000 was collected and passed on to consumers, so it is payable to the Federal Government.
3. Under section 3B(2), it is recoverable as an arrear of tax and no refund of it is admissible.
4. Separately, serial 3 of the Table in section 33 applies to any person who unauthorisedly issues an invoice in which an amount of tax is specified. The penalty is fifty thousand rupees or ten per cent of the tax involved, whichever is higher. Ten per cent of Rs. 45,000 is Rs. 4,500, so the higher figure is Rs. 50,000.

The bakery ends up paying out the Rs. 45,000 it collected and faces a penalty on top.

What if the business should have registered?

Serial 7 of the Table in section 33 applies to a person required to apply for registration who fails to do so before making taxable supplies. The penalty is fifty thousand rupees or five per cent of the tax involved, whichever is higher. If that person fails to get registered within sixty days of starting the taxable activity, the Table adds that, on conviction by a Special Judge, he is liable to imprisonment for a term which may extend to three years, or a fine which may extend to an amount equal to the tax involved, or both.

What if the restaurant is in Islamabad?

Restaurant services in the Islamabad Capital Territory are taxed under the Islamabad Capital Territory (Tax on Services) Ordinance, 2001. Section 3(3) of that Ordinance applies the Sales Tax Act, 1990 and its rules to the collection and payment of the tax so far as they relate to registration and de-registration, records and audit, enforcement and adjudication, and penalties and prosecution.

What about restaurants in Lahore, Karachi or Peshawar?

Tax on restaurant services in the provinces is charged under provincial sales tax laws. Those laws are outside this site’s corpus, so their registration and invoicing rules are not described here.

Common mistakes

• “Adding tax to the bill is fine as long as it is paid to someone.” Section 23(2) limits who may issue a tax invoice, and section 3B sends tax that was not payable to the Federal Government.
• “Tax collected by mistake can be refunded later.” Section 3B(2) says no refund claim for such an amount is admissible.
• “The customer has to prove the tax was passed on.” Section 3B(3) places that burden on the person who collected it.

What to check in the official text

Read sections 2(25), 3B, 14 and 23 of the Sales Tax Act, 1990, and serials 3 and 7 of the Table in section 33, in the edition amended to 30 June 2026. Section 14(3) leaves the manner of registration to Board notifications, which are not reproduced here.