The Punjab Assembly passed the Finance Bill 2026 on June 27, 2026. The Governor of the Punjab assented it on Jully 01, 2026.
The Punjab Finance Act 2026 is applicable from 1st July 2026 to 30th June 2027. For the current prevailing rates of Punjab Sales Tax for Financial Year 2026-27, we have a dedicated blog on it.
Table of Contents
- At a Glance – Major Changes in Punjab Sales Tax 2026-27
- Reduced Sales Tax Rate Increased from 5% to 8%
- Hotels and Restaurants Lost the 5% Digital Payment Incentive
- New Input Tax Restriction for Purchases from Inactive Persons
- Input Tax Adjustment Cap Reduced
- PRA Introduced Risk-Based Input Tax System
- Penalties Increased Significantly
- Failure to Issue Tax Invoice Has Become Costlier
- PRA Can Restrict Government Contracts and Licenses
- What Did Not Change in PST FY 2026-27?
- Legal Sources:
- Last Note
- Disclaimer
The major story of FY 2026-27 is rate increases for many reduced-rate services.
Let’s take a look at the changes in PST due to the Punjab Finance Act 2026-27.
At a Glance – Major Changes in Punjab Sales Tax 2026-27
- Reduced sales tax rate for many services increased from 5% to 8%.
- New Active Taxpayer requirement for input tax adjustment.
- Input tax adjustment cap reduced from 90% to 80%.
- PRA introduced risk-based input tax evaluation system.
- Penalties substantially enhanced.
- New restrictions on government contracts and licenses for inactive taxpayers.
Reduced Sales Tax Rate Increased from 5% to 8%
This is the biggest practical change of FY 2026-27. Many services were previously taxed at 5% without input tax adjustment. From 1st July 2026, they are now taxable at 8% sales tax in Punjab without adjustment of input tax. Affected service sectors include:
- Hotels
- Restaurants
- Marriage halls
- Caterers
- Travel agents
- Tour operators
- Property dealers
- Architects
- Interior designers
- Rent-a-car businesses
- Laundries
- Accountants
- Tax consultants
- Warehouses
Ref: Various serials in Part III of the Second Schedule have been amended by the Punjab Finance Act 2026.
Hotels and Restaurants Lost the 5% Digital Payment Incentive
For the FY 2025-26, Punjab sales tax (PST) for hotels and restaurants was 5% on the payments made through debit cards, credit cards, mobile wallets and QR code scanning. Now, this rate has jumped to 8%. This tax treatment is same for motels, guest houses, cafes, food parlors, resorts and related businesses.
Ref: Sr. No. 1 (Hotels) and Sr. No. 4 (Restaurants) of the Part III of Second Schedule of the Punjab Sales Tax Act 2012.
New Input Tax Restriction for Purchases from Inactive Persons
A new clause was added. Input tax adjustment is now inadmissible where goods or services are received from persons not appearing on:
- PRA Active Taxpayers List
- FBR Active Taxpayers List
Ref: Section 16B(1)(ff) of Punjab Sales Tax Act inserted by the Punjab Finance Act 2026.
Input Tax Adjustment Cap Reduced
Previously, a service business could only claim input tax credit up to 90%. Now, this limit has been reduced to 80%.
Ref: Section 16C(1) of Punjab Sales Tax Act amended by the Punjab Finance Act 2026.
PRA Introduced Risk-Based Input Tax System
On the basis of risk analysis, PRA can now:
- Verify input claims.
- Defer claims.
- Disallow claims.
- Seek additional evidence.
- Select cases for audit.
This is a major compliance development.
Ref: Newly insert Section 16CCC in Punjab Sales Tax Act on Service 2012.
Penalties Increased Significantly
Penalties due to failure to produce records are:
| Taxpayers | Penalties |
| Individuals | Up to Rs. 100,000/- for the first default and Rs. 100,000/- per subsequent default |
| Companies and AOPs | Up to Rs. 500,000/- for the first default and Rs. 500,000/- per subsequent default |
Ref: S.No.5 of Table of penalties of Section 48
Penalties for E-Invoicing Violations have been increased to Rs. 500,000/- for each violation. Business premises may be sealed on repeated defaults.
Ref: S.No.16 of Table of penalties of Section 48 of Punjab Sales Tax Act.
Failure to Issue Tax Invoice Has Become Costlier
If any business fails to or refuses to issue tax invoice, the penalties are:
- Rs.500,000 for first default.
- Rs.1,000,000 per subsequent default.
For continued violation, business premises can be sealed up to 30 days.
Ref: S.No.17 of Table of penalties of Section 48
PRA Can Restrict Government Contracts and Licenses
A powerful compliance provision. Authorities may require PRA registration and active taxpayer status before issuance of licenses, renewal of licenses and award of contracts. This section will contribute towards documentation of economy in Punjab especially and in Pakistan in general.
Ref:Newly Inserted Section 76A of PST Act.
What Did Not Change in PST FY 2026-27?
- Standard sales rate is still at 16%
- Sales tax rate on telecom sector is continuing with 19.5%
- Sales tax Carriage of goods by rail or road is kept at 15%
- Fixed rate of PST for freight forwarding agents is also kept at Rs.1,000 per B/L
- PST on IT sector is same as that of FY 2025-26.
- In Punjab, the tax-free services are same as that of FY 2025-26.
Legal Sources:
The content of this article is based on:
- Punjab Finance Act 2026
- Punjab Sales Tax on Services Act 2012 (Updated FY 2025-26)
- Punjab Sales Tax on Services Act 2012 (Updated FY 2026-27)
These legal sources ar available on the official site of Punjab Code which is the Govt operated database of all laws of the Punjab province of Pakistan.
Last Note
This article explains the changes introduced for FY 2026-27. Readers looking for historical changes introduced through the Punjab Finance Act 2025 may refer to our blog on updates on Punjab Sales Tax for the Financial Year 2025-26.
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 2026, official PRA notifications, or a qualified tax professional before making compliance decisions.
