Commercial Property Rent in Punjab Becomes Costlier After 16% Sales Tax Imposed
KARACHI – July 5, 2025
Renting commercial property in Punjab has become significantly more expensive following the government’s implementation of a 16% sales tax on all non-residential leases, effective July 1, 2025.
The move is part of the Punjab Finance Act 2025, which marks a significant shift in the province’s taxation framework. In a major policy change, the Punjab government has adopted a “tax by default” approach, where all services are deemed taxable unless specifically exempted in the First Schedule of the Act.
Since commercial leasing is not listed among the exemptions, it now falls squarely under the taxable services category.
What’s Taxed and What’s Not?
Under the revised rules:
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16% sales tax will apply to all rentals of commercial, non-residential properties, including offices, shops, and retail spaces.
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Residential properties for personal use remain exempt from sales tax.
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The Punjab Revenue Authority (PRA) will be responsible for overseeing implementation, enforcement, and collection.
This change broadens the tax base significantly compared to prior years, where only a limited set of services were subject to sales tax.
Impact on Property Owners and Tenants
The new tax will directly impact:
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Real estate developers
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Commercial building owners
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Tenants of office, retail, and warehouse spaces
All fixed-fee rental invoices must now include a 16% sales tax, and failure to comply may result in penalties and legal action under PRA regulations.
Several real estate firms and commercial landlords have already begun issuing notices to tenants, informing them about the new tax obligations and updating their billing procedures accordingly.
Compliance Advisory for Businesses
Tax experts and property consultants are advising businesses to:
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Review all lease agreements and update invoicing to reflect the added tax
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Ensure registration with PRA, if required, and file returns accordingly
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Seek legal or tax advice to avoid non-compliance and potential fines
With the real estate sector under increased scrutiny, compliance with tax laws is now more important than ever, especially as provincial and federal authorities look to maximize revenue collection in a tightening fiscal environment.
