The Punjab government, in the finance bill, introduces strict penalties for businesses refusing to accept digital payments, with fines up to Rs1 million for repeated violations.
The penalty for businesses refusing digital payments will be substantial. Any business rejecting payments via debit or credit cards, mobile wallets, or QR codes may face a fine of up to Rs 1 million.
The first offense will incur a minimum fine of Rs 400,000, and each subsequent violation will result in a fine no less than Rs 300,000. In cases of three violations, business premises may be sealed for up to one month.
The finance bill also proposes higher penalties for non-compliance with the Electronic Invoice Monitoring System (EIMS), reinforcing the government’s push toward digitized payment and documentation systems.
The bill also transitions the Punjab Sales Tax on Services (PSTS) from a “positive list” to a “negative list” system. This change, which aligns with global best practices, is expected to significantly broaden the tax base.
Under the new system, only services explicitly listed in the negative list will be exempt from sales tax on services, while all other services will be taxed. The negative list includes 26 service categories, such as public healthcare, education, and certain government services.
Among the services exempt from PSTS under the new system are public healthcare services provided by government institutions, general education services, public transport, and religious, cultural, and recreational services offered by the government.
Services linked to government-sponsored housing schemes or provided by registered charitable institutions are also exempt.
Other exemptions include services related to construction, personal care services without air-conditioning, and services provided by travel agents for Hajj or Umrah. Diplomatic missions and residential rentals are also fully exempt, as are certain port and terminal operator services.
While the Punjab government reduced its revenue target for FY25 from Rs 471 billion to Rs 421 billion, it has set an ambitious goal of Rs 524.7 billion for provincial tax revenues in FY26.
In addition to enforcement measures, the bill introduces several technical reforms. These include limiting input tax adjustment to the standard tax rate, requiring apportionment of input tax adjustments for composite services based on tax rates, and clarifying the division of tax liabilities between withholding agents and service providers in company-to-company transactions.
