The hospitality industry in Pakistan is vital for the economy, impacting tourism and dining. However, navigating the tax environment, particularly the Goods and Services Tax (GST), is complex as it operates under provincial jurisdictions. The blog outlines the GST structure for the hospitality sector in 2025, focusing on caterers, hotels, and restaurants. It highlights GST rates on accommodation and food, emphasizing varying provincial rates (15-16%) and possible reductions or exemptions based on business size and payment types. These updates stem from the 2025 provincial finance acts aimed at enhancing compliance and promoting digital payments.
Overview of GST for Hospitality Industry
The GST for Hospitality Sector comes primarily within the provincial domain of sales tax on services, as it consists of accommodation, food and event-related facilities. They are not taxed at the supply end in contrast with the GST on goods at the federal level. There is a focus on lower charges in 2025 for digital payments (through cards/mob-wallet/QR codes etc.) to promote cashless transaction economies. On the reduced rates, input tax adjustments (which you can think of as analogous to credits) are typically not allowed; businesses cannot deduct taxes paid on inputs.
Key factors influencing rates:
- Business size:Small, non-corporate firms may get exceptions to low rates.
- Location and facilities: A/C venues or hotels/clubs can be hit with higher taxes.
- Turnover thresholds: Small businesses, for example, (less than 5 million PKR turnover per annum) to be exempted.
- Mode of Payment: Discount on making payment through electronic means.
Now, break it down segment by segment.
GST Rates on Hotel Accommodation
Hotel accommodation is a key in the hospitality industry, and GST Rates on Hotel Accommodation widely fluctuate among states. These are prices for booking rooms, frequently with extras like in-room dining.
Punjab
Standard rate is 16% for corporate, franchise, chain hotels, which has more than 20 rooms. Nevertheless, little non-chain hotels (less than 20 rooms) have a lower rate of 5% applying without a creditable tax offset.
Sindh
Businesses are exempt if they generate less than PKR 5 million in annual turnover, as long as they are not air-conditioned, part of a franchise or situated in taxed premises (shopping malls or hotels). Otherwise, the standard 15% applies. For the bigger hotels, no graduated scale is indicated other than the deductions.
Khyber Pakhtunkhwa
Standard around 15%, lower for non-corporate setups under tourist areas (e.g. 10% for certain services without input adjustment). Hotel caterer-like services could be at 10% for functions.
Balochistan
Assumed under the head of overall hospitality services at lower 8% (without input adjustment), may even fall to 2%, if POS systems were in place for an electronic invoice. Exemptions for turnover of less than PKR 2.5 million, subject to the same conditions as Sindh.
Islamabad Capital Territory
15% discount on hotel Facilities based on updated 2025 rates.
In tourism-dependent areas, the provinces like KP and Balochistan give incentives, but hotels are required to get registered and follow digital reporting system in order to avail markdowns.
GST on Hotel Food and Restaurant Services
Speaking of the food available in hotels, GST on hotel food is generally dealt with independently or clubbed with accommodation. It encompasses buffets, room service and a la carte dining, under the category of GST rate for food in the hospitality industry.
Punjab
16% standard, decreased to 5% (no input credit) for debit/credit cards/mobile wallet / QR scan. This is particularly the case in hotel restaurants.
Sindh
For food and beverage services in hotels if paid through credit / debit card, sub section of section 153 to the extent of reduced to 8% (No adjustment of input) Exemptions reflect corresponding rules on accommodation for small scale operators.
Khyber Pakhtunkhwa
Standard about 15%, 10% for ancillary food services without input adjustment.
Balochistan
8% discounted tax rate for hotel-based eateries, reduced further to 2% with POS integration (except for the franchisee or club setups).
ICT
All food services in hotels are to be subjected to 15%.
The bundled rate may apply for hotel room rates just above set thresholds and any inclusions such as food, but separate billing can sometimes improve tax efficiency.
Hospitality Industry GST Rate for Standalone Restaurants
There is a separate hospitality industry GST rate for standalone restaurants, cafes and eateries which is generally lower than that of hotels as these are small businesses. This excludes those inside hotels.
Punjab
16% standard rate, but a reduced tax (no input) of 5% for electronic transfers.
Sindh
8% down on digital transactions (none contributed). Exempt if turnover is less than PKR 5 million and non-AC/non-franchised.
KP
15% standard, with a possible 10% for certain setups.
Balochistan
8% floor, adjustable to 2% with POS and e-invoicing (same as cafes, food huts, etc., not attached to hotels).
ICT
15%, possible 5% for card-based payments in line with recent FBR regarding.
These levels are an incentive to adopt digital, with a penalty for not being integrated at POS.
GST Rates for Caterers
Caterers, who do events like weddings and corporate functions, often straddle restaurants but also have unique things to consider, especially outdoor service.
Punjab
Flat 5% with no input tax credit benefit including marriage halls and pandals.
Sindh
Except for turnovers less than PKR 5 million subject to condition (No AC, single outlet etc.). Otherwise, 15% standard.
KP
10% without input tax adjustment for stand-alone and hotel-connected caterers.
Balochistan
Fall under restaurant at 8% (can reduce to 2% with POS) or fixed for event halls (e.g., PKR 50,000 per function for premium categories).
ICT
15%, packaged with services around the event.
Caterers get exemptions if they are small and do not have ties to taxed venues.
Key Insights
- Reduced Rates Favor Digital and Small Businesses: For small businesses and restaurants, there was a 2-8 percent savings on encountering electronic payments.
- Greater Scrutiny for Hotels: Often, there are fewer exemptions for accommodations than food services, and that’s especially true in urban provinces like Punjab and Sindh.
- Provincial Variations:Punjab’s minimum reduced rates are the lowest (5%) and in Balochistan tech adoption is rewarded by 2%. The caterers are at 10%, and KP tells us to be moderate.
- Impact on Industry:The rates are intended to bring the sector into the formal economy; however, small operators in Sindh and Balochistan benefit from exemptions that decrease compliance
Businesses are encouraged to check with their provincial collectors to determine precise applicability as certain criteria such as utility bill caps (PKR 40,000/month for each energy head) can stimulate exemptions.
Conclusion
GST in Pakistan is crucial for hotels, restaurants and catering to avoid penalties and reduce costs. The 2025 changes put digital use of the system and exemptions for SMEs on steroids. This can play a role in the development of the sector. Whether it is GST Rates on hotel accommodation, or GST on hotel food or overall GST for hospitality industry, please keep in mind that rates are specific and may vary from state to state. POS benefits for the industry If you’re in the hospitality industry. GST could dramatically slash your effective hospitality industry’s GST rate.