The Punjab government has introduced stringent new penalties in its latest Finance Bill, targeting businesses that refuse to accept digital payments. This significant move, aimed at accelerating the adoption of digitized transactions, proposes fines of up to Rs1 million for repeated violations.
Under the new provisions, any business found rejecting payments made via debit or credit cards, mobile wallets, or QR codes could face substantial financial repercussions. A first offense will incur a minimum fine of Rs 400,000, while each subsequent violation will result in a fine no less than Rs 300,000. In cases where a business accumulates three violations, its premises may be sealed for up to one month, underscoring the government’s strong commitment to enforcing digital payment acceptance.
Reinforcing Digital Compliance
Beyond just digital payments, the Finance Bill also proposes higher penalties for non-compliance with the Electronic Invoice Monitoring System (EIMS). This further reinforces the provincial government’s aggressive push toward comprehensive digitized payment and documentation systems, aiming for greater transparency and revenue capture.
Transition to “Negative List” for Sales Tax on Services
In a major structural reform, the bill transitions the Punjab Sales Tax on Services (PSTS) from a “positive list” to a “negative list” system. This shift aligns Punjab’s tax framework with global best practices and is expected to significantly broaden the provincial tax base.
Under the new “negative list” system, all services will inherently be subject to sales tax, with the exception of those explicitly listed as exempt. The negative list currently includes 26 specific service categories.
Key Exempted Services Under the New System
The services specifically exempt from PSTS under this new system are crucial for public welfare and specific sectors:
- Public Services: This includes public healthcare services provided by government institutions, general education services, and public transport.
- Religious, Cultural, and Recreational: Services offered by the government in these categories are also exempt.
- Charitable and Housing: Services linked to government-sponsored housing schemes or provided by registered charitable institutions are exempt.
- Specific Sector Exemptions: Other exemptions cover services related to construction, personal care services without air-conditioning, and services provided by travel agents specifically for Hajj or Umrah pilgrimages.
- Diplomatic and Residential: Diplomatic missions and residential rentals are fully exempt.
- Port and Terminal Operators: Certain services provided by port and terminal operators also find a place on the exempt list.
Ambitious Revenue Targets and Technical Reforms
While the Punjab government reduced its provincial tax revenue target for the outgoing fiscal year (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 these enforcement measures and tax base broadening, the Finance Bill introduces several technical reforms. These include limiting input tax adjustment to the standard tax rate, requiring the apportionment of input tax adjustments for composite services based on varying tax rates, and clarifying the division of tax liabilities between withholding agents and service providers in company-to-company transactions.
These comprehensive changes underscore the Punjab government’s commitment to modernizing its tax administration, boosting digital payment adoption, and ensuring fiscal sustainability through a broader and more equitable tax system.
