Lahore, June 10, 2025 – In a major move toward fiscal modernization, the Punjab government has introduced comprehensive tax reforms under its new finance bill, setting the tone for a digitally compliant and expanded taxation landscape in fiscal year 2025–26 (FY26).
At the heart of this reform package are two landmark shifts:
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The adoption of a “negative list” regime under the Punjab Sales Tax on Services (PSTS) framework.
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A strict digital payments compliance regime, introducing fines up to Rs1 million for non-compliant businesses.
Despite cutting revenue expectations for FY25 from Rs471 billion to Rs421 billion, the government has set a bold target of Rs524.7 billion in tax revenues for FY26, backed by structural and enforcement-driven reforms.
1. Penalties for Refusing Digital Payments: Up to Rs1 Million
The finance bill introduces an aggressive penalty system to enforce the adoption of digital payments:
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Minimum fine of Rs400,000 for a first-time refusal to accept electronic payments (credit/debit cards, mobile wallets, QR codes).
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Rs300,000 or more for each additional violation.
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Businesses facing three or more violations may have their premises sealed for up to 30 days.
This is part of Punjab’s broader effort to curb undocumented cash-based transactions and accelerate its transition to a digital economy. It also aligns with Pakistan’s national digitization strategy, which seeks to improve financial transparency and accountability.
2. PSTS Shift from Positive to Negative List
One of the most consequential changes is the replacement of the existing “positive list” model with a “negative list” under the Punjab Sales Tax on Services Act, 2012. This brings Punjab in line with international tax practices, where:
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All services are taxable unless explicitly exempt.
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A defined list of 26 exempt service categories constitutes the negative list.
The shift will automatically expand the tax base, enabling the Punjab Revenue Authority (PRA) to capture more economic activity without requiring constant legislative updates.
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3. Enhanced Monitoring and Documentation
The new framework strengthens the Electronic Invoice Monitoring System (EIMS) to reinforce compliance. Businesses are now required to:
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Digitally record all transactions.
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Apportion input tax adjustments based on taxable and exempt supplies.
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Clarify tax responsibilities between service providers and withholding agents, especially in business-to-business transactions.
Additionally, input tax claims will be restricted to the standard rate, discouraging misuse of input tax adjustments.
4. What’s Exempt: Breakdown of the Negative List
The new negative list includes 26 service categories exempt from PSTS, strategically selected to protect public welfare, non-profit sectors, and low-margin services:
Public Services & Healthcare
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Doctor fees and hospital charges (public sector only)
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Cosmetic surgery for acid or burn victims
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Medical diagnostic tests
Education & Welfare
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General education and public institutions
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Services by registered charities and approved international NGOs
Utilities & Infrastructure
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Construction-related services: water, gas, sanitation, mechanical, electrical, turnkey
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Work contracts and supply services
Housing & Development
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Developers, builders, promoters under PHATA-approved affordable housing schemes
Transport & Travel
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Public transport, Hajj/Umrah services, air travel for diplomats and crew
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Government-run postal and courier services
Personal Services (Conditional)
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Non-air-conditioned beauty salons, spas, slimming centers
Media & Communication
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Radio and TV advertisements
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Classified ads in print media
Financial & Exchange Services
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Marine export and crop insurance
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Currency exchange by licensed dealers
Recreational & Religious Services
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Government-run sports clubs, parks, museums, zoos, botanical gardens
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Services by religious institutions
Storage & Informal Services
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Agricultural storage for personal use
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Photography/videography by roadside non-corporate operators
Other Exemptions
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Diplomatic missions
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Residential rental services
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Bonded warehouse operations at ports and airports
This exemption strategy ensures that essential services remain untaxed, while most commercial services are brought into the tax net.
5. Revenue Target and Fiscal Outlook
Punjab has reduced its FY25 revenue estimate due to underperformance and economic headwinds, but remains bullish on FY26:
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FY25 Revised Estimate: Rs421 billion
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FY26 Target: Rs524.7 billion — an increase of over 24%
Officials believe that compliance-driven digital reforms, the broader tax base, and the modernized PSTS framework will support this ambitious goal.
Conclusion: Punjab’s Digital Leap in Fiscal Governance
The Punjab Finance Bill 2025–26 is more than a budgetary adjustment; it’s a foundational shift toward a digital, transparent, and equitable taxation system. By penalizing cash-only operations and expanding the tax base through a globally standardized model, the province is taking a proactive step toward fiscal sustainability and economic formalization.
However, successful implementation will depend on:
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Effective enforcement
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Business education
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Public engagement
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Technological readiness
As Pakistan moves into a new era of economic digitization, Punjab’s latest reforms could serve as a model for other provinces — and even for federal policy transformation.