Punjab Budget 2026 proposes Biggest Token Tax Hike for Vehicles above 1000cc

LAHORE – Punjab government unveiled wide-ranging package of tax reforms, regulatory measures, and revenue initiatives, and also made some changes regarding taxes. It includes biggest increase in vehicle token taxes in nearly two decades, stricter enforcement against tax non-compliance, and hefty penalties for companies violating tax laws.

The provincial government proposed substantial increase in token taxes on commercial and larger vehicles with engine capacities exceeding 1000cc.

The proposed budget seeks to triple annual vehicle token taxes across several categories. A vehicle owner currently paying Rs2,200 per year could see the tax rise to Rs6,600, while those paying Rs8,000 may face an annual tax of Rs24,000. The budget also proposes higher withholding taxes on vehicle registration and transfer, increasing the cost of vehicle ownership and transactions.

Authorities have also tightened regulations for the automobile sector. Showroom owners delivering vehicles without registration may face heavy penalties, while all car dealers will be required to function as government withholding agents for tax collection purposes.

Finance Bill offers an incentive for digital transactions by setting sales tax at 8 percent on hotel payments made through credit and debit cards.

Consumers and businesses will face higher taxation on a range of services, as the sales tax rate on various general services is proposed to rise from 5 percent to 8 percent. In addition, foreign exchange companies and money changers will be brought under a 3 percent tax regime.

The government has signaled a strong push toward expanding the tax net and improving compliance.

Under the proposed legislation, unregistered traders will be ineligible for government contracts, licenses, and NOCs. Penalties for violating Punjab Revenue Authority regulations and failing to issue invoices will increase significantly.

Also, companies found violating tax laws may face fines ranging from Rs500,000 to Rs1 million while businesses that fail to file tax returns for two consecutive months risk removal from the Active Taxpayer List. Officials said the measures are aimed at promoting documentation of the economy and reducing tax evasion.

Property owners are also set to benefit from changes in the tax collection system. The monthly penalty for delayed property tax payments will be abolished, with a new quarterly relief mechanism proposed in its place.

Punjab Finance Bill 2026 presents a mix of stricter tax enforcement, higher revenue collection measures, and targeted relief for selected sectors. While supporters argue the reforms will broaden the tax base and improve economic documentation, critics warn that higher taxes and increased compliance costs could place additional pressure on businesses, motorists, and farmers already grappling with rising expenses.