Through the Punjab Finance Act 2025, all amendments introduced by the Punjab Finance Bill 2025 were ratified and approved by the Provincial Assembly of Punjab on June 30, 2025. The Punjab Finance Act 2025, brings a landmark shift to the Punjab Sales Tax on Services Act, 2012 by transitioning from a positive list-based taxation model, where only specified services were taxable, to a negative list regime, under which all services in Punjab are taxable unless specifically exempted.
Prior to June 30, 2025, the Punjab Sales Tax on Services Act, 2012 classified taxable services in its First Schedule and exemptions or reduced/fixed rate services in its Second Schedule. Under the Punjab Finance Act 2025, these Schedules have been substituted and reorganized into clear categories of tax-free services and taxable services, significantly widening the scope of taxability across the province.
This major restructuring aligns Punjab’s regime with modern VAT-style frameworks and underscores the government’s push toward broader sales tax compliance and digital economy integration.
Tax-Free and Taxable Services – Reclassification
- Tax-Free Services (Section 3A): Listed in the new First Schedule, covering essential public sector services, affordable housing under PHATA’s Affordable Private Housing Schemes Rules 2020, charitable and religious institutions, diplomatic missions, residential renting, toll manufacturing/job processing, certain advertising, and services by foreign exchange dealers or money changers.
- Taxable Services (Section 3): Listed in the new Second Schedule, split into:
- Part I: Services taxed at the standard sales tax rate of 16% or other rates.
- Part II: Services subject to fixed tax rates.
- Part III: Services taxed at reduced rates.
First Schedule to the Act
Tax Free Services
Second Schedule
Taxable Services
Part I
| S No. | Description | Condition for exemption |
|---|---|---|
|
1 |
Services related to healthcare provided by the Federal or Provincial Governments or local governments including consultation or visit fee of doctors, medical practitioners and medical specialists, bed or room charges, in public sector hospitals.
|
None
|
|
2
|
Services provided by skin and laser clinics, cosmetic and plastic surgeons and hair transplant services including consultation services.
|
Only to the extent of services provided to acid or burn victims.
|
|
3 |
(i) General education services; and (ii) Education provided by the Federal, or Provincial Governments or local governments in public sector educational institutions. |
None
|
|
4 |
Public transport service provided by the Federal or Provincial Governments or local Governments.
|
None
|
|
5 |
Postal and courier services provided by the Federal or Provincial Governments or local governments.
|
Only to the extent of services provided to the Federal, Provincial Government Departments or local governments.
|
|
6 |
Only to the extent of services provided to the Federal, Provincial Government Departments or local governments.
|
None
|
|
7 |
Services relating to religion, art, culture and sports provided by the Federal or Provincial Governments or local governments
|
None
|
|
8 |
Services relating to physical fitness, entertainment, amusement and learning provided by the Federal or Provincial Governments or local governments, such as gymnasiums, sports clubs, playgrounds, zoological and botanical gardens, museums, libraries, parks, etc.
|
None
|
|
9 |
Services provided by property developers, builders and promoters, including their allied services.
|
Only to the extent of affordable housing services provided under Government sponsored housing programs or any area notified for an Affordable Private Housing Scheme by the Punjab Housing and Town-Planning Agency (PHATA) covered under Rule 2(1)(k), Rule 35 and Rule 36 of the Punjab Housing and Town-Planning Agency (Affordable Private Housing Schemes Rules), 2020. |
|
10 |
Services provided by: (i) a religious or charitable institution for the benefit of public registered under any law for the time being in force; (ii) international non-governmental organizations (INGOs) approved by the Federal Government; and international agencies. |
Subject to exemption from federal taxes by the Federal Board of Revenue.
|
|
11 |
Services provided in respect of insurance.
|
Only to the extent of: (a) marine insurance for export; and (b) crop insurance. |
|
12 |
Construction services and services provided by contractors of building (including water supply, gas supply and sanitary works), roads and bridges, electrical and mechanical works (including air conditioning), horticultural works, multi-discipline works (including turn-key projects) and similar other works.
|
Only to the extent: (i) where the tax is otherwise paid by registered persons as property developers, builders or promoters for building construction; or (ii) where the construction work is funded under an agreement of foreign grant-in-aid or involves construction of consular buildings; or (iii) residential construction projects where the covered area does not exceed 10,000 square feet for a house and 20,000 square feet for an apartment except where construction services are provided to construct more than one house or more than one apartment building; or (iv) where the construction services are provided to any registered person who is otherwise liable to pay sales tax as a property developer, builder and promoter. |
|
13 |
Services provided for personal care by beauty parlors, salons, clinics, sliming clinics, spas (including saunas, Turkish baths and Jacuzzi) and similar other services.
|
Only to the extent of services provided in a parlour, salon or clinic where the facility of air-conditioning is not installed or is not available in the premises on any day of the financial year.
|
|
14 |
Services provided by tour operators and travel agents including all their allied services or facilities.
|
Only to the extent of Hajj and Umrah purposes including ‘Ziyarat’.
|
|
15 |
Facilities for travel originating from Punjab by Air for domestic and international travel.
|
Only to the extent of Air travel services provided to Hajj or Umrah passengers, diplomats and supernumerary crew.
|
|
16
|
Services provided by warehouses or depots for storage or cold storages including letting of space for storages.
|
Only to the extent of storage of agriculture produce for the person’s own consumption.
|
|
17 |
Services provided by photography studios and event or occasion photographers or film-makers.
|
Only to the extent of non-corporate (individual) photographers operating from small road-side shops declared as such by the Authority.
|
|
18 |
Services provided by diplomatic missions.
|
None
|
|
19 |
Renting of personal dwellings for residential use.
|
None
|
|
20 |
Services provided by persons engaged in contractual execution of works or furnishing supplies.
|
Only to the extent of services related to the contracts involving supplies or printing of books
|
|
21 |
Advertisement on television and radio or advertisement services showcasing of any product or service in video programmes, television programmes or motion pictures or music albums.
|
Only to the extent of: (a) sponsored by an agency of the Federal or Provincial Government for health education; or (b) financed out of funds provided by a Government under an agreement of foreign grant-in-aid; or (c) conveying public service message, if telecast on television by the World Wide Fund for Nature (WWF) or United Nations Children’s Fund (UNICEF). |
|
22
|
Services relating to pathological or diagnostic tests exclusively for medical treatment purposes.
|
None
|
|
23 |
Services provided in respect of manufacturing or processing on toll or job basis (against processing on conversion charges) [including industrial and commercial packaging services and similar outsourcing of industrial or commercial processes].
|
None
|
|
24 |
Advertisement including classified ads in newspapers, magazines, journals and periodicals.
|
None
|
|
25 |
Services provided by a foreign exchange dealer or exchange company or money changer or money exchanger.
|
None
|
|
26 |
Services provided by port operators (including airports and dry-ports) and allied services provided at ports and services provided by terminal operators including services in respect of public bonded warehouses.
|
Only to the extent of the amounts received by way of fee under any law or bye-law.
|
| Sr. No. | Description | Classification Code, if Applicable | Rate of Tax |
|---|---|---|---|
|
1 |
All services, except those specified in serial numbers 2 and 3 of this Part, Part-II and Part-III.
|
Respective headings
|
Sixteen percent
|
|
2
|
Services provided by persons for carriage of goods by rail or road.
|
98.04
9804.20009804.9000 and respective headings
|
15% with input tax adjustment for service provider and service recipient.
|
|
3 |
Telecommunication services: (a) telephone services; (b) fixed line voice telephone service; (c) wireless telephone; (d) cellular telephone; (e) wireless local loop telephone; (f) video telephone; (g) payphone cards; (h) pre-paid calling cards; (i) voice mail service; (j) messaging service; (k) short message service (SMS); (l) multimedia message service (MMS); (m) bandwidth services used for voice and video telecommunication services: (i) copper line based; (ii) fiber-optic based; (iii) co-axial cable based; (iv) microwave based; (v) satellite based; (n) telegraph; (o) telex; (p) telefax; (q) store and forward fax services; (r) audio-text services; (s) tele-text services; (t) trunk radio services; (u) paging services; (v) voice paging services; (w) radio paging services; (x) vehicle and other tracking services; and (y) burglar and security alarm services; (i) internet services, whether dialup or broadband, including email services, data communication network services (DCNS) and value added data services; (ii) such charges payable on the international leased lines or bandwidth services used by: (a) software exporting firms registered with Pakistan Software Export Board; and (b) data and internet service providers licensed by the Pakistan Telecommunication Authority; and (iii) such charges payable on the international leased lines used by the software exporting firms registered with Pakistan Software Export Board for software exports. |
98.12
[9857.0000, 9858.0000]
|
Nineteen and a half percent.
|
Fixed- Taxed Services
Part II
| S. No. | Description | Classification Code, if Applicable | Rate of Tax |
|---|---|---|---|
|
1 |
Services provided by property developers, builders and promoters (including their allied services);
|
9807.0000 and respective sub-headings of heading 98.14
|
Rs.100 per square yard for land development and Rs.50 per square feet for building construction.
|
|
2
|
Freight forwarding agents.
|
9805.3000 |
Rs. 1000 per bill of lading
|
Reduced Rate Services
Part III
| S. No. | Description | Classification Code, if Applicable | Rate of Tax |
|---|---|---|---|
|
(1) |
(2) |
(3) |
(4) |
|
1 |
Hotels, motels and guest houses
|
9801.1000
|
(i) Five percent without input tax adjustment for non-corporate, non-franchise, non-chain businesses with less than 20 rooms; and (ii) Sixteen percent for others |
|
2 |
Marriage halls and lawns (by whatever name called) including pandal and shamiana services. Catering services (including all ancillary/allied services such as floral or other decoration, furnishing of space whether or not involving rental of equipment and accessories). |
9801.3000 9801.5000
|
Five percent without input tax adjustment.
|
|
3 |
Services provided in respect of insurance to a policy holder by an insurer, including a re-insurer for: (a) fire insurance; (b) goods insurance; (c) health insurance; (d) life insurance; (e) marine insurance; (f) theft insurance; and (g) any other insurance. |
98.13
|
(a) Zero percent without input tax adjustment for health insurance for individuals; and (b) Five percent for insurance agents and insurance brokers; (c) Sixteen percent of gross premium paid, for others. |
|
4
|
Services provided by restaurants including cafes, food (including ice-cream) parlors, coffee houses, coffee shops, deras, food huts, eateries, resorts and similar cooked, prepared or ready-to-eat food service outlets etc.
|
9801.2000 [9801.9000]
|
(a) Five percent without input tax adjustment where payment against services is received through debit or credit cards , mobile wallets or QR scanning; and (b) Sixteen percent for others. |
|
5 |
Franchise services including intellectual property rights and licensing
|
9823.0000
9839.0000
and respective headings
|
(a) Zero percent without input tax adjustment for services relating to educational institutions for information technology; and (b) Five percent without input tax adjustment for services relating to educational institutions other than educational institutions for information technology; and (c) Sixteen percent for others. |
|
6 |
Construction services and services provided by contractors of building (including water supply, gas supply and sanitary works), roads and bridges, electrical and mechanical works (including air conditioning), horticultural works, multi-discipline works (including turn-key projects) and similar other works) Explanation: Notwithstanding the rate of 5% fixed in column 4, the following further reduced rates shall be applicable: (a) one per cent for all services specified at S.No.14 without input tax credit or adjustment to the extent of Government civil works including those of cantonment boards involved in the ongoing development schemes and projects launched during Financial Year 2016-17 and funded under the Annual Development Plan of the Punjab Government or funded through foreign loans where the negotiations were finalized after 1st of July 2016 or funded under Public Sector Development Program of the Federal Government or funded by the Cantonment Boards; and (b) zero per cent for all services specified at S.No.14 without input tax credit/adjustment to the extent of Government civil works including those of cantonment boards involved in the ongoing development schemes and projects launched prior to Financial Year 2016-17 and funded under the Annual Development Plan of the Punjab Government or funded through foreign loans where the negotiations were finalized as on 1st of July 2016 or funded under Public Sector Development Program of the Federal Government or funded by Cantonment Boards. |
9824.0000 and 9814.2000
|
five percent without input tax credit or adjustment in respect of Government civil works and sixteen percent with input tax credit or adjustment for others.
|
|
7 |
Services provided for personal care by beauty parlors, salons, clinics, sliming clinics, spas (including saunas, Turkish baths and Jacuzzi) and similar other establishments.
|
9810.0000
9848.0000
9847.0000
9821.4000
9821.5000
9815.7000 and respective headings
|
Five percent without input tax adjustment.
|
|
8 |
Information technology-enabled or information technology based services including software development, software customization, software maintenance, system support, system assembly, system integration, system designing and architecture, system analysis, system development, system operation, system maintenance, system up-gradation and modification, data warehousing or management, data entry operations, data migration or transfer, system security or protection, web designing, web development, web hosting, network designing, services relating to enterprise resource or management planning (including marketing of products), development and sale of smart phone applications or games, graphics designing, medical transcription, remote monitoring, telemedicine, insurance claim processing, online retrieval and database access or retrieval service.] [Explanation: This entry includes and shall be deemed to have always included real estate aggregators and streaming/over-the-top (OTT) services.] |
9815.6000 and respective heading
|
(a) Zero percent without input tax adjustment for services provided by software or IT-based system development persons; and (b)Five percent without input tax adjustment for others. |
|
9 |
[Services provided by other consultants (by whatever name called or treated, whether as consultant or otherwise) including human resource and personnel development services, exhibition or convention services including provision of space, equipment, accessories and other allied services, event management services (whole range and variety of their services regardless of separate or individual classification thereof), valuation services, evaluation services (including competency and eligibility testing services), certification, verification and equivalence services, market research services, marketing or sales services (including marketing agencies and on line marketing or sales services), surveyors services, training or coaching services (other than general education services) and credit rating services.
|
9815.9000 [9832.0000, 9827.0000, 9818.3000, 9818.2000, 9819.9300, 9852.0000, 9859.0000, 9825.0000, 9819.5000, 9849.0000, 9818.9000, 9853.0000,
9856.0000 and respective headings.
|
(a) Zero percent without input tax adjustment for training services related to Information Technology; and (b) Sixteen percent for others. |
|
10
|
Services provided by tour operators and travel agents including all their allied services or facilities.
|
9805.5100, 9805.5000, 9803.9000. |
Five percent without input tax adjustment.
|
|
11 |
Manpower recruitment agents, including labour and manpower supplies.
|
9805.6000
|
(a) Five percent without input tax adjustment for services where the value of service is fixed by the Bureau of Emigration and Overseas Employment; and (b) Sixteen percent for others. |
|
12 |
Services provided by property dealers and realtors.
|
9806.2000, 9844.0000.
|
Five percent without input tax adjustment.
|
|
13 |
Services provided by fashion designers, including use of brand name, logo or house mark (whether or not registered) in the manufacturing or trading of products whether relating to textile, leather, jewellery or other product regimes including allied services such as cutting, stitching, printing, manufacturing, fabrication, assembly, embellishment, adornments, display (including marketing, packing and delivery etc.)
|
9834.0000, 9819.6000, 9839.0000 and respective headings
|
Five percent without input tax adjustment.
|
|
14 |
Services provided by architects, town planners, landscapers, landscape designers, [interior decorators and interior designers.
|
9814.1000, 9814.9000, 9814.4000 and respective headings.
|
Five percent without input tax adjustment.
|
|
15 |
Rent-a-car (including renting of all categories of vehicles meant for transportation of persons) |
9819.3000 and respective headings |
(a) Five percent without input tax adjustment for services provided to end consumers; and (b) Sixteen percent for others. |
|
16 |
Car/automobile dealers
|
9806.3000
9845.0000
|
(a) Sixteen percent for services provided by companies or authorized dealers; and (b) Five percent without input tax adjustment, for others. |
|
17 |
Brokerage (other than stock) and indenting services including agents, brokers, under-writers and auctioneers
|
9829.0000
9819.1200
9819.1100
9819.1300
9819.9100
|
(a) Five percent without input tax adjustment for services provided in respect of agricultural produce and home chefs; and (b) Sixteen percent for others. |
|
18 |
Services provided in specified fields such as health care, gym, physical fitness, indoor sports, games, amusement parks, arcades and other recreation facilities, and body or sauna massage etc.
|
9821.1000
9821.2000
9821.4000
|
Five percent without input tax adjustment.
|
|
19 |
Services provided by Laundries and dry cleaners
|
9811.0000
|
Five percent without input tax adjustment.
|
|
20 |
Services provided by Cable TV operators
|
9819.9000
|
Five percent without input tax adjustment.
|
|
21 |
Services in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances.
|
Respective headings
|
Five percent without input tax adjustment.
|
|
22 |
Services provided by accountants (including practicing chartered or cost accountants), auditors, actuaries, tax consultants (by whatever name called), practicing company secretaries, receivers, liquidators, auctioneers and corporate law consultants, whether individual or otherwise.
|
9815.2000
9815.3000
9850.0000
9851.0000 9855.0000 and respective headings
|
(a) Five percent without input tax adjustment for services relating to accountancy, audit, tax or corporate law consultancy; and (b) Sixteen percent for others. |
|
23 |
Facilities for travel originating from Punjab by Air for domestic and international travel.
|
9803.1000
9803.1100
|
Five percent without input tax adjustment.
|
|
24 |
Services provided by skin and laser clinics, cosmetic and plastic surgeons and hair transplant services including consultation services.
|
9847.0000 and respective headings
|
Five percent without input tax adjustment.
|
|
25 |
Services provided by warehouses or depots for storage or cold storages including letting of space for storages.
|
9833.0000 and respective headings
|
Five percent without input tax adjustment.
|
|
26
|
(i) Medical consultation/visit fee exceeding Rs.1500 per consultation/visit of doctors, medical practitioners and medical specialists (ii) Bed/Room charges of hospitals exceeding Rs.6,000/- per day per bed/room. |
9815.1000 and other Respective headings
|
Zero percent without input tax adjustment.
|
|
27
|
Services provided by photography studios and event or occasion photographers/film-makers.
|
9 819.7000 and respective headings
|
Five percent without input tax adjustment.
|
|
28
|
Parking services
|
Respective headings
|
Five percent without input tax adjustment.
|
|
29 |
Dress designing and stitching services.
|
Respective headings
|
Five percent without input tax adjustment.
|
|
30 |
Rental of bulldozers, excavators, cranes, construction equipment, Scaffolding, framework and shuttering, generators, storage containers, Refrigerator, shelf or rack renting, etc
|
Respective heading
|
Five percent without input tax adjustment.
|
|
31 |
Services in respect of treatment of textile, leather but not limited to Dyeing services, Edging and cutting, cloth treating, water proofing, Embroidery, Engraving, Fabric bleaching, Knitting, Leather staining, Leather working, Pre shrinking, Colour separation services, pattern printing and shoe making services.
|
Respective heading
|
Five percent without input tax adjustment.
|
|
32 |
Apartment house management, real estate management and services of rent collection.
|
Respective heading
|
Five percent without input tax adjustment.
|
|
33 |
Ride-Hailing Services Explanation: This entry includes and shall be deemed to have always included cab aggregators. |
Respective heading
|
Five percent without input tax adjustment.
|
|
34 |
Entertainment services (including cinemas, theatres, concerts, circus, sports events, races, film, fashion shows and mobile stage shows)
|
|
Zero percent without input tax adjustment.
|
Because of this shift from a positive list to a negative list regime, all services previously not specified now default to taxable status, unless explicitly exempted under the new First Schedule.
Key Amendments – Input Tax Disallowances and Penalties
The Punjab Finance Act 2025, introduces additional input tax restrictions to align with the new regime, disallowing credits on:
- Tax-free services;
- Sales tax paid on telecommunication services above 19.5%;
- Sales tax paid on carriage of goods by rail or road above 15%;
- Sales tax paid on other services above 16%.
It also significantly enhances penalties for electronic invoice monitoring and digital payment non-compliance, increasing the fine from Rs. 25,000–100,000 to Rs. 400,000–1 million. For businesses refusing to accept digital payments (credit/debit cards, mobile wallets, QR scanning), new penal provisions impose a minimum penalty of Rs. 400,000 for first default and Rs. 300,000 for each subsequent default, with the possibility of business premises sealing for up to one month for repeated violations. These measures clearly reflect Punjab’s push to digitize its provincial tax system and enhance taxpayer documentation and compliance.
Notable Anomalies in the New Scheme
While the Punjab Finance Act 2025 modernizes the sales tax framework, certain anomalies have emerged:
- Carriage of goods by rail or road services appear in Part I (standard rate) instead of Part III (reduced rate) despite a 15% rate cap.
- The exemption for transportation of water through pipeline or conduit seems to have been withdrawn or overlooked.
- The new Second Schedule still refers to classification codes from the previous Schedule, which has now been substituted entirely, creating potential interpretive gaps.
- Medical consultation fees and hospital room charges below Rs. 1,500/visit and Rs. 6,000/day may now unintentionally fall under the standard 16% tax rate, despite reduced rate provisions in Part III.
These ambiguities may require clarificatory notifications by the Punjab Revenue Authority (PRA) to ensure smooth implementation.
Provincial Government’s Powers and Rate Caps
Under the amended PST Act, the Provincial Government can no longer increase the sales tax rate beyond the standard 16% without the Provincial Assembly’s approval. However, it retains the ability to adjust reduced rates in Part III upward to the standard rate, signaling tighter legislative oversight over tax rate changes.
Conclusion
The Punjab Finance Act 2025 represents a structural overhaul of the Punjab Sales Tax on Services regime, replacing the long-standing positive list with a comprehensive negative list framework that makes all services taxable unless specifically exempt.
By reorganizing services into distinct tax-free and taxable categories, introducing tighter input tax credit disallowances, and imposing stronger penalties for non-compliance and digital payment refusal, the Act signals Punjab’s firm move toward a modern, VAT-aligned and digitally monitored tax system.
Although certain anomalies and classification gaps may require timely clarifications from the Punjab Revenue Authority (PRA), the overall reform broadens the tax base, strengthens fiscal oversight, and sets the stage for enhanced revenue mobilization and transparency across the province.
FAQs — Punjab Finance Act 2025
Q1. What changed under the Punjab Finance Act 2025?
Punjab has replaced the positive list approach with a negative list regime under the Punjab Sales Tax on Services framework. In practice, all services are taxable unless specifically exempted in the First Schedule, while the Second Schedule sets out standard-rate, fixed-tax and reduced-rate treatments. This widens the tax base and aligns the province with VAT-style systems.
Q2. When do the changes take effect?
The Provincial Assembly ratified the Punjab Finance Act 2025 on June 30, 2025. Unless a particular provision states otherwise, the new rules apply from the start of the relevant financial year and continue subject to any subsequent PRA notifications or clarifications.
Q3. How does the negative list regime affect businesses?
Businesses should assume that their services are taxable unless they can clearly point to an exemption in the First Schedule or a preferential treatment in the Second Schedule. This presumption of taxability requires careful service mapping, correct invoicing, and appropriate rate selection to ensure compliance.
Q4. How are services now classified?
Services fall into two overarching buckets: “tax-free services” in the First Schedule and “taxable services” in the Second Schedule. The Second Schedule is further divided into Part I (generally 16% standard rate unless otherwise stated), Part II (fixed taxes, such as for developers/builders and freight forwarders), and Part III (reduced rates for specified sectors and conditions).
Q5. What is the standard PST rate on services?
The First Schedule exempts, among others, specified public sector healthcare and education, public transport provided by government, residential dwelling rentals, certain PHATA affordable housing activities, toll and job-work processing on conversion charges, classifieds in print media, foreign exchange dealer services, and diplomatic missions. Many of these exemptions have conditions that must be satisfied in full.
Q6. Which services are tax-free under the First Schedule?
The First Schedule exempts, among others, specified public sector healthcare and education, public transport provided by government, residential dwelling rentals, certain PHATA affordable housing activities, toll and job-work processing on conversion charges, classifieds in print media, foreign exchange dealer services, and diplomatic missions. Many of these exemptions have conditions that must be satisfied in full.
Q7. Are telecom services subject to a higher rate?
Yes. Telecommunication services carry an elevated rate of 19.5% with detailed sub-categories listed in the Second Schedule. Providers and recipients should review the scope notes to ensure accurate application and proper input tax treatment.
Q8. How do fixed taxes apply to developers/builders and freight forwarders?
Developers/builders/promoters are subject to Rs. 100 per square yard on land development and Rs. 50 per square foot on building construction, while freight forwarding agents are charged Rs. 1,000 per bill of lading. These are Part II fixed-tax entries and operate independently of the ad valorem standard rate.
Q9. What are the main reduced-rate incentives?
Reduced-rate design features include 5% without input for restaurants when payments are made through digital channels (cards, wallets, QR), zero or five percent without input for specified IT/ITeS categories (with express inclusion of OTT/real-estate aggregators), and preferential rates for hotels, marriage halls, personal care, consultants, architects, and select insurance lines. Where conditions are not met, the standard rate typically applies.
Q10. Which input tax credits are disallowed?
Input tax is disallowed for tax-free services and for tax paid above certain caps: over 19.5% on telecom, over 15% on carriage of goods by rail or road, and over 16% on other services. These caps require finance teams to validate vendor tax rates and to adjust claims accordingly.
Q11. What are the penalties for non-compliance and refusal of digital payments?
Penalties tied to the Electronic Invoice Monitoring System (EIMS) now range from Rs. 400,000 to Rs. 1,000,000. Separate penalties for refusing digital payments are Rs. 400,000 for the first default and Rs. 300,000 for each subsequent default, with repeat non-compliance risking sealing of premises for up to one month.
Q12. Can the Provincial Government change rates by notification?
The Provincial Government cannot increase sales tax beyond the standard 16% without approval of the Provincial Assembly. It may, however, raise reduced rates in Part III up to the standard rate, creating a ceiling-based control that enhances legislative oversight.
Q13. What anomalies should businesses watch for?
Stakeholders have noted drafting tensions, including carriage of goods by rail/road appearing in Part I despite a 15% cap, possible omission of the prior exemption for water transport via pipeline or conduit, references to legacy classification codes after schedule substitution, and a risk that sub-threshold medical fees/room charges could default to 16%. These areas may warrant PRA guidance.
Q14. Who will issue clarifications?
The Punjab Revenue Authority is expected to issue circulars and notifications to resolve classification gaps, rate placement issues, and any transitional complexities that arise under the negative list regime.
Q15. How should a business confirm if its service is taxable?
Begin with the presumption of taxability under the negative list model. Check the First Schedule for an exemption and the Second Schedule for a fixed or reduced rate. Keep a written classification memo linking your service descriptions and contracts to the exact schedule entries, and maintain supporting evidence.
Q16. What immediate compliance steps are recommended?
Map all outward and inward services against the new schedules, update invoicing and POS systems for correct rates and digital payment flags, review input tax claims for the new caps, train billing and tax teams, and embed contractual tax clauses that reference the negative list structure and current rates.
Q17. How do digital payments influence the tax position?
Digital payments are central to policy design. For restaurants, the rate drops to 5% without input only when payment is made via debit/credit cards, mobile wallets or QR; otherwise, 16% applies. Refusal to accept digital payments now attracts significant penalties, reinforcing the province’s digitization agenda.
Q18. How are toll manufacturing and job work treated?
Manufacturing or processing performed on a toll/job basis against conversion charges is listed as tax-free in the First Schedule. Contracts and invoices should clearly describe conversion charges and segregate them from any other taxable components to preserve the exemption.
Q19. Is residential renting covered by PST?
Renting of personal dwellings for residential use is tax-free under the First Schedule. Commercial and mixed-use arrangements should be evaluated separately under the Second Schedule.
Q20. How are OTT platforms and real-estate aggregators treated?
The ITeS entry in Part III expressly includes, and is deemed always to have included, OTT services and real-estate aggregators. Depending on the provider category and qualifying conditions, these may attract zero or five percent without input; otherwise, the standard rate applies.
