The Punjab Finance Bill, 2026 proposes a focused but important set of amendments in the Punjab Sales Tax on Services Act, 2012. The Bill has been tabled before the Provincial Assembly of the Punjab and the proposed changes are expected to take effect from 1 July 2026, subject to enactment. The amendments mainly target input tax claims, active taxpayer compliance, reduced rate services, electronic invoicing, penalties, and registration-linked enforcement.
For businesses operating in Punjab, these proposals are not merely rate changes. They may affect vendor onboarding, monthly sales tax cash flows, capital expenditure planning, POS/billing systems, license renewals, public-sector contracts and overall PRA compliance discipline.
Active taxpayer status to become a key compliance condition
The Bill proposes to substitute the definition of “active taxpayer” in section 2 of the Punjab Sales Tax on Services Act, 2012. Under the proposed definition, a registered person will not be treated as active where its registration has been suspended or blacklisted by PRA, or where it has failed to file returns by the due date for the last two consecutive tax periods.
This change becomes more significant because it is linked with input tax adjustment. A new clause is proposed to be inserted in section 16B, under which input tax will not be admissible on goods and services received against invoices issued by persons who are not appearing on the active taxpayer list of PRA or FBR.
In practical terms, a supplier’s non-active status may now directly affect the customer. Even if tax is charged on the invoice, the buyer may not be able to claim input tax if the supplier is not appearing on the relevant active taxpayer list. This makes vendor screening and periodic ATL verification a necessary part of the procurement and accounts payable process.
| Proposed change | Practical impact | Who should review |
|---|---|---|
| Active taxpayer definition revised | Two consecutive late/non-filed returns may affect ATL status | All PRA-registered persons |
| Input tax blocked on non-ATL invoices | Tax charged by non-active suppliers may become a cost | Businesses claiming input tax |
| PRA/FBR ATL relevance introduced | Vendor verification becomes operationally important | Procurement and finance teams |
Input tax adjustment proposed to become more restrictive
The Bill proposes to amend section 16C by reducing the general input tax adjustment limit from 90% to 80% of output tax. This means that a registered person may be required to discharge at least 20% of its output tax in cash during a tax period, even where sufficient input tax is otherwise available.
A new section 16CC is also proposed for input tax on capital goods, machinery and fixed assets. Under this proposal, input tax on such items will be adjustable in twelve equal monthly instalments, subject to the restrictions contained in section 16B. This may have a direct cash-flow impact on businesses undertaking capital expenditure, including hotels, healthcare facilities, gyms, laundries, cold storages, equipment rental businesses and other service providers investing in plant or fixed assets.
The Bill also proposes to insert section 16CCC, empowering PRA to establish a risk-based input tax evaluation system. Under this system, PRA may identify, evaluate and monitor risks associated with input tax claims, adjustments, credits and refunds; maintain risk profiles of taxpayers, suppliers and transactions; defer claims pending verification; disallow claims fully or partly; require further evidence; or select cases for audit or investigation. The proposed section also provides that no adverse action shall be taken without an opportunity of being heard, and an aggrieved person may apply to the Commissioner, who is required to decide the application within thirty days.
| Area | Existing position | Proposed position |
|---|---|---|
| General input adjustment cap | Up to 90% of output tax | Up to 80% of output tax |
| Capital goods and fixed assets | Generally claimable subject to normal rules | Spread over 12 monthly instalments |
| Input tax scrutiny | Existing verification/audit framework | Risk-based evaluation and profiling system |
Reduced rate services proposed to move from 5% to 8%
A major rate-related proposal is the increase in reduced rate from 5% to 8% for several services listed in Part III of the Second Schedule. The Bill specifically proposes substitution of the word “Five” with “Eight” at various entries, including S/N 2, S/N 4(a), S/N 10, S/N 12, S/N 14, S/N 15(a), S/N 18, S/N 19, S/N 22(a), S/N 25, S/N 30 and S/N 32.
This change will affect a wide range of consumer-facing and professional services. Businesses covered by these entries will need to update billing systems, contracts, quotations, POS configurations and customer communication before implementation.
| Service category | Existing rate | Proposed rate |
|---|---|---|
| Marriage halls, lawns, pandals, shamianas and catering services | 5% | 8% |
| Restaurants and similar food outlets — digital payment clause | 5% | 8% |
| Tour operators and travel agents | 5% | 8% |
| Property dealers and realtors | 5% | 8% |
| Architects, town planners, landscapers and interior designers | 5% | 8% |
| Rent-a-car services provided to end consumers | 5% | 8% |
| Healthcare, gyms, fitness, indoor sports, amusement and recreation | 5% | 8% |
| Laundries and dry cleaners | 5% | 8% |
| Accountants, auditors, tax consultants and corporate law consultants | 5% | 8% |
| Warehouses, depots, cold storages and storage space | 5% | 8% |
| Rental of construction equipment, generators, containers and related items | 5% | 8% |
| Apartment-house management, real estate management and rent collection | 5% | 8% |
For advisers and professional firms, the proposed increase in the reduced rate for accountancy, audit, tax consultancy and corporate law consultancy services is particularly relevant, as it may require revision of fee notes, engagement terms and billing templates.
Hotels and restaurants: digital payments remain incentivised, but at a higher reduced rate
The Bill proposes to revise the rate structure for hotels, motels and guest houses under S/N 1 of Part III of the Second Schedule. Under the proposed structure, where payment is received through debit or credit cards, mobile wallets or QR scanning, the rate will be 8% without input tax adjustment. For other cases, the rate will be 16%.
For restaurants and similar food outlets covered under S/N 4(a), the digital payment reduced rate is proposed to increase from 5% to 8%, while the higher rate for other modes of payment continues to remain relevant. The policy direction is clear: Punjab continues to encourage documented and digital payments, but the concessionary rate is being rationalized upwards.
| Service | Digital payment | Other payment modes |
|---|---|---|
| Hotels, motels and guest houses | 8% without input adjustment | 16% |
| Restaurants and similar food outlets | 8% under digital payment clause | 16% where applicable |
Hospitality businesses should review their POS systems, payment gateway mapping, menu pricing, invoice formats and customer-facing tax disclosures to ensure correct application of the proposed rates from the effective date.
Foreign exchange services proposed to be brought into the tax net
The Bill proposes to omit S/N 25 from the First Schedule, which is linked with foreign exchange dealers, exchange companies and money changers. Correspondingly, a new S/N 35 is proposed to be inserted in Part III of the Second Schedule for foreign exchange services.
Under the proposed entry, foreign exchange services provided by any person, including an exchange company, forex dealer and money changer, will be taxable at 3% without input tax adjustment. The rate is proposed to apply to services involving consideration of spread charges permitted by the State Bank of Pakistan in relation to buying and selling of foreign currencies.
| Service | Proposed tax treatment | Tax base |
|---|---|---|
| Foreign exchange services | 3% without input tax adjustment | Spread charges permitted by SBP |
This is a significant sector-specific change. Exchange companies, forex dealers and money changers may need to review registration status, invoicing mechanism, tax computation on spread, accounting treatment and return filing requirements.
Event management services proposed to be separately taxed
The Bill proposes to remove the expression relating to event management services from S/N 9 and insert a separate new S/N 36 in Part III of the Second Schedule.
Under the proposed new entry, event management services covering the whole range and variety of such services, regardless of separate or individual classification, will be taxable at 8% without input tax adjustment. This separate entry appears to remove ambiguity and place event management services clearly within the reduced-rate taxable framework.
| Service | Existing treatment | Proposed treatment |
|---|---|---|
| Event management services | Covered within broader description | Separate entry at 8% without input adjustment |
Event managers should review service agreements, composite billing, reimbursements, vendor arrangements, and whether the proposed 8% applies to their full event management offering.
Penalties proposed to be substantially increased
The Bill proposes significant increases in penalties under section 48(2). At S/N 5, relating to failure to produce records or information despite notice, the penalty is proposed to be increased separately for individuals and for companies/AOPs. For individuals, the penalty may go up to Rs. 100,000 for the first default and Rs. 100,000 for each subsequent default. For companies and AOPs, the penalty may go up to Rs. 500,000 for the first default and Rs. 500,000 for each subsequent default.
The Bill also proposes penalty increases for defaults relating to electronic invoice monitoring, failure or refusal to issue tax invoices, and non-compliance with e-invoicing requirements. In certain cases, penalties are proposed to increase up to Rs. 500,000 and Rs. 1 million.
| Default area | Existing penalty | Proposed penalty |
|---|---|---|
| Failure to produce records | Existing lower slabs | Up to Rs. 100,000 for individuals; up to Rs. 500,000 for company/AOP |
| Interference with electronic invoice monitoring | Rs. 100,000 per act | Rs. 500,000 per act |
| Failure/refusal to issue tax invoice | Rs. 20,000 / Rs. 50,000 | Rs. 500,000 / Rs. 1,000,000 |
| E-invoicing non-compliance | Up to Rs. 100,000, minimum Rs. 25,000 | Up to Rs. 500,000 |
The proposed increases indicate that PRA is moving towards stricter enforcement in areas where documentation, invoicing and system integration are involved. Businesses should therefore review record retention, tax invoice issuance, e-invoicing compliance and response protocols for PRA notices.
License renewals and public contracts may depend on PRA registration and ATL status
One of the most important administrative proposals is the substitution of section 76A. Under the proposed provision, PRA may require licensing authorities, permission/NOC issuing authorities and other competent authorities not to issue or renew licenses, permissions or NOCs for taxable service activities unless the applicant proves that it is registered under the Act and appears on PRA’s active taxpayer list.
The same proposed section also covers public procurement. A procuring agency may be restrained from awarding or renewing a contract constituting taxable services unless the bidder, contractor, supplier or consultant is registered and appears on PRA’s active taxpayer list. A newly established business is proposed to be exempt from this requirement for six months from the date of registration.
| Area | Proposed condition | Practical impact |
|---|---|---|
| License, permission or NOC | PRA registration and ATL status | Non-compliance may affect renewal |
| Public-sector contracts | Registered and active taxpayer status | Non-active bidders may be restricted |
| Newly established businesses | Six-month relaxation | Temporary compliance window |
This proposed amendment may make PRA compliance a business continuity issue. Licensed service providers and businesses dealing with public-sector entities should ensure that their registration and ATL status remain intact at all times.
Other administrative amendments
The Bill also proposes certain administrative amendments. Section 5(3) is proposed to be amended by inserting the words “First or”, so that amendments in the First Schedule may also be covered in the relevant legislative placement process.
Section 56(1) is proposed to be amended by replacing “Authority” with “Commissioner” and omitting the requirement of notification in the official Gazette. This relates to access powers concerning premises, stocks, accounts and records. Section 60(1) is also proposed to be amended by increasing monetary thresholds relating to adjudication powers, with “ten” being substituted by “fifty” and “five” being substituted by “twenty-five”.
| Provision | Proposed amendment | Likely effect |
|---|---|---|
| Section 5(3) | “First or” inserted | First Schedule amendments also covered |
| Section 56(1) | Commissioner substituted for Authority | Access powers streamlined |
| Section 60(1) | Adjudication limits enhanced | Larger cases may be handled at field level |
These changes are administrative in nature but should not be ignored. They indicate a broader policy direction towards more direct field-level enforcement and faster administrative action.
Practical action points for businesses
Businesses should start by checking their own PRA filing status because two consecutive missed returns may affect active taxpayer status. They should also build PRA/FBR ATL checks into vendor onboarding and invoice processing, as input tax on invoices from non-active suppliers may become inadmissible.
Finance teams should remodel monthly sales tax cash flows based on the proposed 80% input adjustment cap and the twelve-month spreading of input tax on capital goods, machinery and fixed assets. Businesses planning significant capital expenditure should factor this delayed recovery into their working capital forecasts.
Affected service providers should update their billing systems, POS configurations, customer contracts and pricing models for the proposed rate changes. Particular attention should be given to hotels, restaurants, event managers, exchange companies, professional firms, warehouses, property-related services and equipment rental businesses.
Finally, businesses dealing with licensing authorities or public-sector contracts should ensure continuous PRA registration and ATL status, as non-compliance may now affect license renewals, permissions, NOCs and contract eligibility.
Conclusion
The Punjab Finance Bill, 2026 proposes a clear shift towards stricter documentation, active taxpayer verification, controlled input tax adjustment and stronger PRA enforcement. While the rate increases will be immediately visible for several sectors, the deeper impact lies in the proposed input tax restrictions, risk-based evaluation system, higher penalties and registration-linked controls.
Businesses operating in Punjab should review these proposals early, assess their sector-specific impact and update internal tax compliance processes before the proposed effective date of 1 July 2026. Since these amendments are still proposals, the final legal position should be confirmed once the Punjab Finance Act, 2026 is enacted.