Punjab unveils major tax overhaul

The Punjab government has quietly introduced extensive amendments to several tax laws through the proposed Punjab Finance Bill 2026, significantly revising property taxation, vehicle taxes, sales tax regulations and enforcement mechanisms aimed at strengthening revenue collection and improving tax compliance across the province.

Under amendments to the Punjab Urban Immovable Property Tax Act, 1958, property owners will now be permitted to pay property tax through electronic transfers. Furthermore, additional tax liabilities or withdrawal of tax concessions for delayed payments will no longer be calculated on a monthly basis. Instead, penalties will be imposed quarterly, with deadlines falling on October 31, January 31, April 30 and July 31.

The proposed Finance Bill also raises motor vehicle taxes under the Punjab Motor Vehicles Taxation Act, 1958. Annual taxes have been increased from Rs4,000 to Rs6,600, Rs6,000 to Rs12,000, Rs8,000 to Rs18,000, and Rs22,000 to Rs24,000, depending on vehicle categories.

In addition, vehicles currently subject to token tax ranging from Rs1,500 to Rs5,000 will now be taxed at 0.3% of the purchase price instead of 0.2 per cent. Vehicles falling within the Rs8,000 to Rs12,000 slab will also shift from a fixed tax regime to a value-based tax of 0.4% of the purchase price, up from the existing 0.3 per cent.

To encourage digital transactions, the government has proposed reducing the General Sales Tax on Services (GSTS) from 16% to 8% on services paid through credit cards, debit cards, QR codes or mobile wallets.

However, suppliers opting for the reduced rate will not be eligible for input tax adjustment. Meanwhile, GST on certain services, including event management, has been increased from 5% to 8%.

The Bill also imposes a 3% GST on commissions earned by foreign exchange companies, currency dealers and money changers without allowing input tax adjustment.

A major regulatory change makes it mandatory for all motor vehicle dealers in Punjab to obtain a government licence before conducting business. Licensed dealers will be responsible for collecting all applicable taxes, duties and fees on vehicle transactions, depositing them into the provincial treasury, and ensuring the replacement of government-approved number plates upon transfer of ownership. Failure to comply may result in recovery of unpaid taxes along with penalties of up to 100% of the outstanding amount.

The proposed amendments to the Punjab Sales Tax Act, 2012 redefine active taxpayers as those who have filed federal or provincial income tax returns and whose sales tax registrations remain active. Only such taxpayers will qualify for tax incentives. Input tax credits on capital goods, machinery and other fixed assets will now be adjusted over 12 monthly instalments within one year.

To curb fraudulent refunds and fake input tax claims, the Punjab Revenue Authority (PRA) plans to introduce a risk-based evaluation system. Taxpayers will be assigned risk profiles, allowing authorities to verify claims, seek additional documentation, delay or reject refunds, and select cases for audit where necessary. The Bill also guarantees taxpayers the right to a hearing before any adverse action and provides for appeals to be decided within 30 days.

The Finance Bill substantially enhances penalties for tax violations.