LAHORE: The Punjab government has increased the concessionary sales tax rate on services provided by hotels and restaurants from 5 per cent to 8 per cent under the Punjab Finance Act, 2026, with the revised rate taking effect during the fiscal year 2026-27.
The increase forms part of the provincial government’s fiscal measures aimed at enhancing revenue collection while continuing to encourage digital payments in the hospitality sector.
Hotels and guest houses
Under the amended law, a concessionary sales tax rate of 8 per cent will apply to services provided by hotels, motels and guest houses, provided that payment for the services is received through debit cards, credit cards, mobile wallets or QR code payments.
Businesses opting for the concessionary rate will not be entitled to adjust input tax.
Previously, a reduced rate of 5 per cent was available without input tax adjustment for non-corporate, non-franchise and non-chain businesses operating establishments with fewer than 20 rooms.
Restaurants and cafés
The Finance Act, 2026 also revises the concessionary tax rate for services provided by restaurants, cafés, food parlours, ice cream parlours, coffee houses, coffee shops, dhabas, food huts, eateries, resorts and similar outlets serving cooked or ready-to-eat food.
These businesses will now be subject to an 8 per cent sales tax rate, subject to the condition that payment is received through debit cards, credit cards, mobile wallets or QR scanning.
As with hotels, businesses availing themselves of the concessionary rate will not be permitted to claim input tax adjustment.
The previous concessionary rate of 5 per cent applied under similar conditions.
Focus on digital payments
Tax experts said the revised tax structure reflects the Punjab government’s continued emphasis on promoting digital payment channels while increasing provincial revenue.
They noted that businesses accepting electronic payments can still benefit from the concessionary tax rate, although the increase from 5 per cent to 8 per cent will raise the tax burden for service providers operating under the reduced-rate regime.
The experts added that hotels and restaurants should review their pricing strategies and tax compliance procedures to ensure they correctly apply the revised rate and comply with the conditions governing eligibility for the concessionary regime.
