Punjab Finance Act 2025: Reforming Sales Tax on Services

LAHORE: The Punjab Finance Act 2025, designed to streamline the sales tax structure for services within Punjab and address related concerns, has been presented in the Punjab Assembly. This legislation introduces a taxation model based on a negative list.

According to the proposed finance bill, employing a negative list approach for service taxation is not unprecedented; numerous nations already utilize this framework. Its adoption is projected to significantly boost the provincial government’s revenue by expanding the tax base. The Finance Bill also proposes increased penalties for non-compliance, specifically concerning the Electronic Invoice Monitoring System.

As detailed in the bill, Section 3A is included to clarify that “all services are taxable under this Act, including but not limited to the services.”

The bill specifies that, irrespective of other provisions within the Act and subject to conditions outlined, all services listed in the First Schedule will be considered tax-free.

Section 16B is incorporated to define tax-exempt services, including the provision and consumption of goods or services; the amount of sales tax already paid; telecommunication services exceeding nineteen and a half percent ad valorem; goods transportation by rail or road exceeding fifteen percent ad valorem; and other services exceeding sixteen percent ad valorem.

According to the bill, any individual declining digital payments (such as debit/credit cards, mobile wallets, or QR scanning) will face a penalty of up to one million rupees. The minimum penalty is set at four hundred thousand rupees for the initial violation and three hundred thousand rupees for each subsequent violation. Furthermore, three instances of non-compliance may result in the business premises being sealed for up to one month.

The Second Schedule, Taxable Services, stipulates a 15% tax rate with input tax adjustments for both service providers and recipients for services related to goods transport by rail or road. A 19.5% tax will be applied to telecommunication services, encompassing:

  • Telephone services
  • Fixed line voice telephone service
  • Wireless telephone
  • Cellular telephone
  • Wireless local loop telephone
  • Video telephone
  • Payphone cards
  • Pre-paid calling cards
  • Voice mail service
  • Messaging service
  • Short message service (SMS)
  • Multimedia message service (MMS)
  • Bandwidth services used for voice and video telecommunication services:
    • Copper line based
    • Fiber-optic based
    • Co-axial cable based
    • Microwave based
    • Satellite based
  • Telegraph
  • Telex
  • Telefax
  • Store and forward fax services
  • Audio-text services
  • Tele-text services
  • Trunk radio services
  • Paging services
  • Voice paging services
  • Radio paging services
  • Vehicle and other tracking services
  • Burglar and security alarm services
  • Internet services, whether dialup or broadband, including email services, data communication network services (DCNS) and value added data services
  • Charges payable on international leased lines or bandwidth services used by:
    • Software exporting firms registered with Pakistan Software Export Board
    • Data and internet service providers licensed by the Pakistan Telecommunication Authority
  • Charges payable on international leased lines used by software exporting firms registered with the Pakistan Software Export Board for software exports