Punjab’s Proposed Fiscal Reforms: Tax Hikes and Revenue Targets for 2026

The Punjab government has proposed a comprehensive overhaul of its provincial tax structure, aiming to generate Rs748.70 billion in revenue for the 2026 fiscal year. This target represents a 42.69% increase over the previous year’s collection goal of Rs524.70 billion. The strategy focuses on expanding the tax base through higher water charges, increased agricultural income taxes, and tighter enforcement of sales tax on services, while simultaneously abolishing the cotton fee to support the struggling textile sector.

How Will Agricultural Taxes Change?

The government plans to transition from a crop-based Abiana (water charge) system to a flat-rate regime. According to the proposed Punjab Finance Bill 2026, water charges for the Kharif season will be fixed at Rs1,650 per acre, while the Rabi season will be set at Rs850 per acre.

For landowners, the bill introduces a uniform agricultural income tax of Rs1,000 per acre for those holding more than 12.5 acres. This replaces a tiered system that previously taxed holdings between 12.5 and 25 acres at Rs300 per acre, and larger holdings at incrementally higher rates. Additionally, the government has increased the tax on irrigated orchards from Rs600 to Rs1,000 per acre, and on non-irrigated orchards from Rs300 to Rs500 per acre.

What Are the New Rules for Motor Vehicle Taxation?

The provincial government is targeting a threefold increase in token taxes for commercial loader vehicles to boost non-tax revenue. Under the proposed schedule, heavy transport vehicles exceeding 16,000kg will face a token tax of Rs24,000, up from the current Rs8,000.

Private vehicle owners with larger engines will also see an increase in costs. Vehicles with engines exceeding 1,000cc but not surpassing 2,000cc will be taxed at 0.3% of their invoice value, while vehicles exceeding 2,000cc will be subject to a 0.4% tax rate. Furthermore, the government has mandated that all motor vehicle dealers act as withholding agents, requiring them to ensure vehicles are fully registered and taxes are paid before they are released to buyers.

How Is the Sales Tax on Services Being Restructured?

The Punjab Revenue Authority (PRA) is implementing stricter compliance measures for sales tax on services. A dual tax structure for restaurants is a central feature: establishments will collect an 8% sales tax on payments made via digital channels like credit cards or QR codes, while a 16% rate will apply to cash payments.

The PRA has also introduced a “risk register” to profile taxpayers and transactions. Under the new rules:

• Input tax claims for capital goods and machinery must be adjusted in 12 equal monthly installments rather than being claimed upfront.
• Input tax claims are disallowed if the invoice issuer is not on the active taxpayer list of the PRA or the Federal Board of Revenue (FBR).
• Non-compliance can result in fines of up to Rs100,000 for individuals and Rs500,000 for companies.

Why Is the Cotton Fee Being Abolished?

In a departure from the broader trend of tax increases, the government has abolished the cotton fee originally established under the Punjab Finance Act of 1973. This move serves as a relief measure for the province’s ginning sector. According to government data, the decision follows a sustained decline in cotton production and the subsequent closure of numerous ginning units across the region in recent years.

Summary of Key Fiscal Adjustments

| Tax Category | Change |
| :— | :— |
| Agricultural Income Tax | Uniform rate of Rs1,000/acre for >12.5 acres |
| Restaurant Sales Tax | 8% (Digital) vs 16% (Cash) |
| Commercial Token Tax | Threefold increase for heavy vehicles |
| Cotton Fee | Abolished |
| Property Tax | Electronic payment made mandatory |

The Punjab government’s push for increased revenue reflects an attempt to create fiscal space without introducing entirely new tax categories. By tightening the definition of active taxpayers and mandating electronic payments for property taxes, the administration aims to curb evasion and streamline collection processes. The success of these measures will depend on the PRA’s ability to implement the new risk-profiling system while balancing the financial burden on the agricultural and commercial sectors.