LAHORE: The government of Punjab has introduced a major revision in its tax policy, making it mandatory for three key sectors to withhold up to 80% of sales tax on services at the time of payment to service providers.
This significant move is part of an amendment to the Punjab Sales Tax on Services (Withholding) Rules, 2015, aimed at tightening compliance and improving tax collection efficiency.
According to a notification issued by the Punjab Revenue Authority (PRA), a new provision—Rule 5a—has been added under the revised Punjab Sales Tax on Services (Withholding) Rules, 2025. The new rule outlines clear withholding requirements for specific sectors when availing taxable services from companies listed as active taxpayers.
Under Rule 5a:
• Telecommunication, banking, and insurance companies will be required to withhold 80% of the sales tax on taxable services (excluding advertisement services) provided by another active taxpayer company. The remaining 20% will be the responsibility of the service provider to deposit with the government.
• All other companies, when receiving taxable services from active taxpayer companies (again excluding advertisement services), must withhold only 20%, while the remaining 80% of the tax will be deposited by the service provider.
This decision marks a strategic shift by the Punjab government to ensure greater control over tax flows in the services sector, particularly in high-revenue industries. By assigning a significant withholding burden to sectors like telecom, banking, and insurance, Punjab aims to reduce tax evasion and promote stronger documentation within the economy.
The revised withholding structure is expected to have a direct impact on how major businesses handle their tax obligations concerning services and signals a more proactive compliance framework by the provincial authorities.
