LAHORE: The Punjab government on Tuesday proposed increasing Abiana (water charges), token tax and agriculture income tax under the Punjab Finance Bill 2026 in order to widen the provincial tax base and create additional fiscal space without imposing new taxes.
The government plans to collect Rs748.70 billion in taxes, which is 42.69 per cent more than last year’s target of Rs524.70bn.
It proposed replacing the existing crop-based Abiana system with a flat-rate regime, under which water charges during the Kharif season will be fixed at Rs1,650 per acre and Rs850 per acre during the Rabi season.
An additional irrigation charge of Rs2,000 per acre annually has been proposed for approved orchards, while water supplied through government or private lift irrigation schemes will be charged at Rs2,250 per acre per year.
The bill also proposes a uniform agriculture income tax of Rs1,000 per acre for landowners holding more than 12.5 acres. At present, tax is levied at Rs300 per acre on holdings between 12.5 and 25 acres, Rs400 per acre on holdings between 25 and 50 acres and Rs500 per acre on holdings exceeding 50 acres. Tax rates on orchards have also been increased, with the levy on irrigated orchards rising from Rs600 to Rs1,000 per acre and that on non-irrigated orchards from Rs300 to Rs500 per acre.
Proposes increase in Abiana, token tax, agri income tax, abolition of cotton fee; various fine amounts, service charges hiked, electronic payment of property tax made mandatory; car dealers to act as withholding agents
In a relief measure for the cotton sector, however, the bill abolishes the cotton fee levied under the Punjab Finance Act, 1973. The seasonal charge on raw cotton arriving at ginning factories has been removed in view of declining production and closure of a large number of ginning units in recent years.
A threefold increase in token tax on commercial loader vehicles is also on the cards. Under the proposed structure, vehicles with a maximum laden capacity exceeding 4,060kg but not exceeding 8,120kg will pay Rs6,600, up from Rs2,200. Vehicles with a capacity exceeding 8,120kg but not exceeding 12,000kg will see the tax rise from Rs4,000 to Rs12,000. Long trailers and other vehicles with a capacity exceeding 12,000kg but not exceeding 16,000kg will pay Rs18,000, compared with the current Rs6,000, while vehicles exceeding 16,000kg will be subject to a token tax of Rs24,000, up from Rs8,000.
Token tax on private vehicles with larger engine capacities has also been increased. The rate for vehicles with engine power exceeding 1,000cc but not exceeding 2,000cc has been proposed at 0.3 per cent of invoice value, compared with the existing 0.2pc, while vehicles above 2,000cc will be taxed at 0.4pc, against the current 0.3pc.
The bill also makes electronic payment of property tax mandatory under the Punjab Urban Immovable Property Tax Act, 1958, ending the existing system that allowed both manual and digital payments. At the same time, the government has eased the late-payment regime by replacing monthly surcharges with a quarterly system. Penalties will now accrue after Sept 30, Dec 31, March 31 and June 30 each year.
The Punjab Sales Tax on Services Act, 2012, has been amended extensively to tighten compliance and restructure input tax adjustments. The definition of an active taxpayer has been narrowed to exclude persons whose registration has been suspended or blacklisted by the Punjab Revenue Authority (PRA), as well as those who fail to file returns for two consecutive tax periods.
Input tax on capital goods, machinery and fixed assets will now be adjusted against output tax in 12 equal monthly installments instead of being claimed upfront. In addition, input tax claims based on invoices issued by persons not appearing on the active taxpayers’ lists of either the Punjab Revenue Authority or the Federal Board of Revenue (FBR) will no longer be admissible.
A new Section 16CCC authorises the PRA to establish a risk register for profiling taxpayers, suppliers and transactions. Where an input tax claim is deemed risky, the authority may defer or disallow the claim, seek additional documentation or refer the matter for audit. However, no adverse action may be taken without providing the taxpayer an opportunity to be heard. An appeal mechanism has also been provided, requiring the concerned commissioner to decide appeals within 30 days.
Penalties under the sales tax law have been raised substantially. Individuals will face fines of up to Rs100,000 for a first violation and the same amount for each subsequent default, while companies and associations of persons may be fined up to Rs500,000 for both initial and repeated violations. Several other penalties under the law have also been enhanced.
The bill also introduces a dual tax structure for restaurants, with an 8pc sales tax rate applicable where payment is made through debit or credit cards, mobile wallets or QR codes, while a 16pc rate will apply to all other payment methods.
The reduced sales tax rate applicable to a broad range of services, including IT-related, transport and professional services, has been increased from 5pc to 8pc. Two new service categories have also been added to the reduced-rate schedule. Foreign exchange services will be taxed at 3pc without input tax adjustment, while event management services will attract an 8pc rate without input tax adjustment.
The bill further amends the Punjab Motor Vehicle Transaction Licensees Act, 2015, by designating all motor vehicle dealers as withholding agents responsible for collecting and depositing taxes, duties and fees at the point of sale. Under the new provisions, dealers will not be allowed to hand over a vehicle to a buyer unless it has been registered, all applicable dues have been paid and government-approved number plates have been affixed. Dealers violating these requirements will be liable to pay the outstanding amount along with an equivalent penalty.
According to the government, the measure is aimed at curbing the use of unregistered vehicles, streamlining the registration process and improving law and order across Punjab.
Published in Dawn, June 17th, 2026