Punjab proposes higher token tax, service levies in Finance Bill 2026-27
The Punjab government has unveiled a wide-ranging Finance Bill for fiscal year 2026-27, proposing changes to vehicle taxes, sales tax rates, property tax collection and agricultural levies as part of efforts to boost provincial revenue, expand the tax base and improve compliance.
One of the key proposals includes an increase in vehicle token tax for the first time in nearly two decades. The revised rates would apply to vehicles with engine capacities above 1,000cc, while commercial and heavy vehicles, including trucks, are also expected to face higher annual taxes under the new framework.
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At the same time, the government has proposed major incentives for electric vehicles by offering a 99% concession in token tax to encourage the adoption of cleaner and environmentally friendly transportation across the province.
The Finance Bill also recommends increasing motor vehicle transfer fees. Authorities have proposed aligning the Hire Purchase Agreement fee with existing transfer charges. In addition, vehicle dealers may be authorised to act as registration agents, allowing buyers to complete registration at the point of sale. The government also plans to intensify action against unregistered vehicles.
Under the proposed tax measures for the services sector, hotels could face an 8% sales tax on payments made through credit cards, debit cards and online platforms. Sales tax on several other services is also proposed to increase from 5% to 8%.
A separate 3% tax has been proposed on the services provided by foreign exchange companies and money changers. Officials say these changes are part of broader reforms aimed at improving documentation, widening the tax net and simplifying compliance procedures.
For property owners, the bill proposes making property tax payments mandatory through the e-pay system. The surcharge on late payments would be collected quarterly instead of monthly. The government also plans to introduce capital valuation measures within the property tax framework.
Under the self-assessment mechanism, taxpayers would receive a 5% concession on property tax payments.
To support entrepreneurship, the government has proposed exempting newly established businesses from certain tax requirements during their first six months of operation. However, unregistered traders could face stricter restrictions, including ineligibility for government contracts, licences and no-objection certificates (NOCs).
The bill further recommends increasing penalties for violations of tax laws to strengthen enforcement and improve compliance.
In a move aimed at supporting farmers, particularly in south Punjab, the government has proposed abolishing the cotton fee on raw cotton to reduce production costs and provide relief to growers.
The Finance Bill also proposes higher agricultural income tax rates while maintaining tax exemptions for agricultural land holdings of up to 12.5 acres.
For land holdings between 12.5 and 25 acres, the tax rate is proposed to increase from Rs300 to Rs1,000 per acre. For holdings between 25 and 50 acres, the rate would rise from Rs400 to Rs1,000 per acre, while land exceeding 50 acres would also be taxed at Rs1,000 per acre, up from the existing Rs500.
Agricultural tax on irrigated mature orchards is proposed to increase from Rs600 to Rs1,000 per acre, while the rate for non-irrigated mature orchards would rise from Rs300 to Rs500 per acre.
The government has also proposed an increase in abiyana, or irrigation charges, across the agriculture sector. Irrigation fees for Kharif crops are expected to increase to Rs1,650 per acre, while Rabi crops would be charged Rs850 per acre.
An additional annual irrigation fee of Rs2,000 per acre has been proposed for orchards, while government lift irrigation charges could rise to Rs2,250 per acre annually.
Reacting to the proposed measures, Khyber Pakhtunkhwa Adviser to Finance Muzammil Aslam said KP continues to maintain the lowest tax rate in the country on credit card and online payments at 6%. He also claimed that vehicle registration charges, local taxes and property transfer taxes remain lower in Khyber Pakhtunkhwa than in Punjab.
The Punjab Finance Bill 2026-27 combines revenue-generating measures with targeted incentives for electric vehicles, new businesses and the agriculture sector. If approved by the provincial assembly, the proposed reforms are expected to affect vehicle owners, transport operators, property taxpayers, service providers, hotel customers, traders and farmers across the province.
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