Punjab Sales Tax Updates 2025-26 (Applicable from 1 July 2025)

The Punjab Finance Act 2025 increased scope of sales tax on services in Punjab. The provisions of the Finance Act are applicable from 1^st July 2025 to 30^th June 2026.

This article is retained for the historical references only. For the updates of the Punjab Finance Act 2026, you can read our dedicate blog on it.

For current prevailing rates of Punjab Sales Tax (PST), you can read our blog for the year 2026-27.

Let’s take a look at the updates of PST for Financial Year 2025-26

At a Glance – Major Changes in Punjab Sales Tax FY 2025-26

• Introduction of tax-free services schedule.
• Shift from positive-list to broad taxation approach.
• Reduction of standard sales tax rate from 16% to 15% for carriage of goods by rail and road.
• Increase of telecom sales tax rate to 19.5%.
• New fixed-tax regime for freight forwarders.
• New penalties for refusal to accept digital payments.
• Major restructuring of First and Second Schedules.
• Changes in input tax adjustment restrictions.

Punjab Moved to a Broad-Based Taxation Model

Prior to FY 2025-26, only services listed in the Second Schedule of the Punjab Sales Tax on Services Act 2012 were taxable. From 1 July 2025:

Now, section 3(1) of the PST Act states, “All services became taxable unless specifically treated as tax-free under the First Schedule or subject to special rates under the Second Schedule.”

Now, all the services are taxable unless they are specified as tax free under the newly inserted section 3A. This is arguably the biggest structural change in Punjab sales tax since 2012.

Introduction of Tax-Free Services Schedule

A new Section 3A has been newly inserted in the Punjab Sales Tax on Services Act 2012. This new section introduces tax free services via a dedicated First Schedule of the PST Act.

Major tax-free services include:

• Public sector healthcare services
• Public education services
• Government public transport services
• Certain religious and charitable services
• Affordable housing schemes
• Hajj, Umrah and Ziyarat services
• Certain construction activities
• Agricultural storage services
• Manufacturing on toll or job basis
• Newspaper advertisements
• Crop insurance and marine export insurance

Standard Sales Tax Rate Rationalized

Also, the Punjab Finance Act 2025 introduced a new structure:

Freight Forwarders Moved to Fixed Tax Regime

There was a major change for logistics businesses. Freight forwarding and shipping agents were placed in a separate regime of fixed tax which is Rs. 1,000 per Bill of Lading.

Ref: Second Schedule Part II (Fixed Rate Services)

Restaurants Continued Preferential Digital Payment Rate

In Punjab, restaurants received 5% sales tax where payment is received through credit or debit cards, mobile wallets (Easypaisa, JazzCash) and QR Codes. And sales tax is 16% for other payments. The Punjab Finance Act 2025 kept its continuity.

Ref: Second Schedule Part III (Reduced Rate Services) Sr. No. 4

Hotels Received New Reduced-Rate Regime

Hotels, motels and guest houses including canteens, caterers and food parlours could charge 5% sales tax on invoices, but they can’t claim adjustment of input tax.

Corporate hotels, franchisees of fast-food chain stores and guest houses including motels (with less 20 rooms) can’t avail facility of reduced rate of 5% sales tax.

Ref: Second Schedule Part III (Reduced Rate Services) Sr. No. 1

Software & IT Sector Changes

The Punjab Finance Act 2025 retained:

• 0% for software exports and IT-based system development persons; and
• 5% for other IT-enabled services.

This remained one of the most important incentives under Punjab Sales Tax Act on Services 2012.

Ref: Second Schedule Part III (Reduced Rate Services) Sr. No. 8

New Tax-Free Treatment for Hajj & Umrah Services

Travel agent and tour operator services became tax-free to the extent of:

• Hajj
• Umrah
• Ziyarat services

This was one of the most significant changes for the travel industry.

Ref: First Schedule (Tax Free Services) Sr. No. 14

New Digital Payment Penalty Introduced

A completely new penalty was introduced. Businesses refusing debit cards, credit cards, mobile wallets and QR scanning could face penalty up to Rs. 1 million. Scale of penalties was:

Ref: Section 48(2) of the Punjab Sales Tax Act.

Changes to Input Tax Restrictions

Section 16B was amended. Input tax became inadmissible for:

• Tax-free services
• Tax-free goods and services consumption

Ref: Sections 16B(1)(nm) and 16B(1)(rr) of the Punjab Sales Tax Act.

New Reduced-Rate Services – PST

Several sectors were placed under 5% reduced-rate taxation without input adjustment, including:

• Travel agents
• Tour operators
• Manpower recruitment agents
• Property dealers
• Architects
• Warehouses
• Photographers
• Ride-hailing services
• Accountants
• Tax consultants
• Restaurants
• Beauty salons
• And many others

Ref: Second Schedule Part III (Reduced Rate Services) and respective headings therein.

Conclusion

Punjab Finance Act 2025 fundamentally changed the Punjab Sales Tax framework by introducing a broad-based taxation model, dedicating the first schedule for tax-free services, restructuring tax rates, and introducing sector-specific concessions and compliance measures effective from 1 July 2025.

Legal Source

This article was prepared after reviewing and comparing:

1. The Punjab Finance Act 2025
2. The Punjab Sales Tax on Service 2012 (Updated after the Punjab Finance Act 2025)
3. The Punjab Sales Tax on Service 2012 (Updated after the Punjab Finance Act 2024)

The objective is to identify the legislative and tax changes introduced with effect from 1 July 2025. These laws are available at the official site of the Punjab Code which is the Govt operated database of all laws of the Punjab province of Pakistan.

Last note

This article only explains the Punjab sales tax changes effective from 1 July 2025 under the Punjab Finance Act 2025.

The Punjab Sales Tax on Services (Amendment) Act 2026 later amended certain administrative and enforcement provisions of the law. Amendment Act did not introduce any changes to the sales tax rates, taxable services framework, First Schedule and Second Schedule.

Disclaimer

This article is for educational and informational purposes only and should not be treated as legal or tax advice. Readers should consult the Punjab Sales Tax on Services Act 2012, Punjab Finance Act 2025, official PRA notifications, or a qualified tax professional before making compliance decisions.