Punjab budget raises tax rates
Punjab has not introduced any new tax in its budget for fiscal year 2026-27, offering some relief to the province's cash-strapped residents. However, the government plans to raise the rates of several existing taxes to meet its revenue targets. The proposed Finance Bill 2026 seeks higher rates for token tax, Abyana (water tax) and agriculture income tax.
Commercial loader vehicles face a sharp increase, with taxes proposed to rise roughly three times across all weight categories. Vehicles between 4,060kg and 8,120kg would see tax rise from Rs2,200 to Rs6,600. Those between 8,120kg and 12,000kg would go from Rs4,000 to Rs12,000. Vehicles between 12,000kg and 16,000kg would rise from Rs6,000 to Rs18,000, while those above 16,000kg would increase from Rs8,000 to Rs24,000.
Tax on vehicles above 1,000cc is also set to change. For engines between 1,000cc and 2,000cc, the rate would drop to 0.1% of invoice value from the current 0.2%. For engines above 2,000cc, the rate would rise to 0.4% of invoice value from the current 0.3%.
On the irrigation front, the government proposes a flat-rate water charge instead of crop-based billing: Rs1,650 per acre for the Kharif season and Rs850 per acre for Rabi. Orchards with approved irrigation would pay an additional Rs2,000 per acre yearly, and those using lift irrigation (government or private) would pay Rs2,250 per acre yearly.
Agriculture income tax is also proposed to rise. Landowners with more than 12.5 acres would pay a flat Rs1,000 per acre, up from the earlier slab system: Rs300 per acre for 12.5 to 25 acres, Rs400 per acre for 25 to 50 acres, and Rs500 per acre for above 50 acres. Tax on irrigated orchards would rise from Rs600 to Rs1,000 per acre, and on non-irrigated orchards from Rs300 to Rs500 per acre.
Property tax payment will now be mandatory through electronic channels under the Punjab Urban Immovable Property Tax Act, 1958, removing the earlier option of manual payment. In a related relief measure, the late payment surcharge will now be calculated quarterly instead of monthly, with new deadlines set at September 30, December 31, March 31 and June 30, replacing the old monthly system that began with an October 31 deadline.
The cotton sector gets relief, with the bill abolishing the cotton fee under the Punjab Finance Act, 1973. This seasonal fee was charged when raw cotton arrived at ginning factories in South Punjab, but it has been scrapped due to falling cotton output and the shutdown of many ginning units.
The biggest changes target the Punjab Sales Tax on Services Act, 2012. The definition of "active taxpayer" has been tightened to exclude anyone suspended or blacklisted by the Punjab Revenue Authority, or anyone who has missed filing returns for two straight tax periods. Under a new Section 16CC, input tax on capital goods, machinery and fixed assets must now be claimed in 12 equal monthly instalments instead of all at once. Input tax claims linked to invoices from sellers not listed as active taxpayers, either by the authority or the Federal Board of Revenue (FBR), will be rejected outright.
A new risk-based system under Section 16CCC lets the Punjab Revenue Authority maintain a risk register to flag taxpayers, suppliers and transactions. If an input tax claim is flagged as risky, the authority can delay it, reject it partly or fully, ask for more documents, or send it for audit. The law requires that the taxpayer be heard before any action is taken, and allows appeals to the commissioner, who must decide within 30 days.
Penalties under the sales tax law have also gone up sharply. Individuals could now face fines up to Rs100,000 for a first violation, and the same amount for each repeat violation. Companies and associations of persons face fines up to Rs500,000 for both first-time and repeat violations. Several other penalties in the schedule have also been increased.
Service tax rates are changing too. Restaurants will face a dual rate: 8% for payments made via debit or credit cards, mobile wallets or QR codes, and 16% for all other payment methods. The reduced tax rate on services like IT, transport and professional services rises from 5% to 8%. Two new categories join the reduced-rate list: foreign exchange services at 3% (with no input tax adjustment) and event management services at 8% (also with no input tax adjustment).
Lastly, the bill amends the Punjab Motor Vehicle Transaction Licensees Act, 2015, making all motor vehicle dealers withholding agents responsible for collecting and depositing taxes, fees and duties at the time of sale. Dealers can no longer hand over a vehicle to a buyer unless it is registered, all dues are paid and deposited with the government, and standard government-approved number plates are fitted. Dealers who break this rule will have to pay the outstanding amount plus an equal penalty. The government says this step aims to stop unregistered vehicles from being driven on roads, simplify registration and improve law and order across Punjab.