The Punjab government has proposed a revised sales tax framework for the restaurant sector in the Punjab Finance Bill 2026 that would increase the tax rate on digital payment transactions, a move that has drawn immediate public criticism given that digital payments have historically been taxed at a lower rate specifically to encourage consumers and businesses to move away from cash.
Under the proposed framework, payments made through debit cards, credit cards, mobile wallets, or QR codes at restaurants will attract an 8 percent sales tax, up from the existing 5 percent rate that had been put in place to incentivise formal, traceable digital transactions. All other payment methods, including cash, will remain subject to the standard 16 percent rate, maintaining the differential between digital and non-digital payments but narrowing the gap considerably by raising the digital rate by 3 percentage points.
The stated rationale behind the proposal is twofold: generating additional provincial revenue and continuing to encourage the documentation of restaurant sales through formal payment channels. However, the logic of using a tax increase on digital payments as a documentation tool is being questioned by observers who note that the existing 5 percent rate was itself a deliberate policy choice to make digital payments more attractive relative to cash, and that raising the digital rate reduces the financial incentive for consumers to choose traceable payment methods over untraceable ones. Critics argue that a more consistent approach to encouraging digitization would be to keep the digital rate low and enforce compliance more aggressively on the cash side, rather than reducing the cost advantage that digital payments currently enjoy.
The proposal arrives at a moment when Pakistan’s federal and provincial governments are simultaneously pushing ambitious digital payment adoption targets while also looking to digital transactions as a source of incremental tax revenue, creating a structural tension between financial digitization goals and fiscal policy. For the restaurant sector specifically, where point-of-sale integration and e-invoicing requirements have been expanding, the increase in the digital payment tax rate could slow the adoption curve that had been building momentum under the previous 5 percent rate, particularly in mid-range and casual dining establishments where consumers are most price-sensitive about the effective total cost of a meal when taxes and service charges are included.
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