Punjab Budget 2026-2027

Despite belt tightening, no new taxes

Though operating under a new series of constraints, in which the provinces are surrendering part of their share from the Divisible pool to the federal government, Punjab presented its budget for the coming fiscal year of 2026-2027 without imposing any new taxes, and not even revising the rates for the existing taxes which is often enough the thrust of provincial taxation measures. One direction the Punjab government did not take was to increase the rates, or reorganise the basis, of the agricultural income tax. It continues as a sort of land revenue tax, a straightforward levy on the basis of land owned, and the assessed productivity of the land. The declarations of income and expenditure, with the income being taxed, are absent. This means that farmers continue to avoid the toils of income tax officials, and the provincial government avoids the embarrassment of admitting that it simply does not have the capacity of levying such a tax. Instead, the Punjab Revenue Authority has seen its target go up by 55 percent, to Rs 528.5 billion.

Punjab has also allocated Rs 546 billion as a contribution to the central government, which represents its share of the money to be transferred back to the federal government from the Rs 4.39 trillion it expects to receive from the federal divisible pool. This is the first of what is expected to be a three-year agreement, under which the provinces will give back to the federal government a chunk of their receipts from their shares of the federal divisible pool. The money is supposed to be used on defence, though this will allow the federal government more leeway in meeting debt servicing obligations. This is mainly the result of trying to operate an Award made in 2009, meaning that constant extensions have made an Award supposed to last until 2015, distribute resources 12 years later.

Punjab illustrates the problem that all provinces are facing because an Award that is now an entire award overdue. What has been achieved is hardly even a fix; a proper permanent arrangement is needed. At least the National Finance Commission has been constituted. Now it should proceed to an Award. Punjab does not have a decisive role, but it must use its good offices to get An Award through.