The legality of the Punjab government’s new tax on commercial rental properties has been called into question, igniting a constitutional debate over double taxation. This move, which levies a provincial sales tax on an income stream already subject to federal income tax, highlights the unresolved ambiguities created by Pakistan’s Eighteenth Amendment.
According to a review by Muhammad Asif Asgher, an attorney-at-law and former Chief Commissioner of Inland Revenue, the new tax is a direct result of the provinces’ post-Eighteenth Amendment push to expand their revenue bases. The 2010 amendment, which abolished the Concurrent Legislative List, empowered provinces by devolving legislative authority over many subjects. A key change was the addition of a small, bracketed phrase to Clause 49 of the Federal Legislative List: “except sales tax on services.” This phrase became a constitutional green light for provinces to generate revenue by taxing services, a power they quickly leveraged.
Following the amendment, provinces like Punjab and Sindh established their own tax frameworks, enacting the Punjab Sales Tax on Services Act, 2012 and the Sindh Sales Tax on Services Act, 2011, respectively. A central challenge for these laws was defining “service” broadly enough to be an effective source of revenue. The Punjab Act defines “service” as “anything which is not goods,” a wide-ranging definition that includes a list of taxable services.
Sindh was the first to extend this definition to include the letting of immovable property, a move that was subsequently challenged in the courts. While the Sindh High Court did not directly rule on whether renting a property constitutes a service, it sided with the landlords by noting that the law at the time only mentioned movable property in its definition of “economic activity.” The Supreme Court later dismissed an appeal from the Sindh government with a succinct, one-line observation: “The mere renting out of property by a landlord to a tenant is not taxable as it is not a taxable service.” However, this ruling left the core constitutional question unanswered.
Undeterred, both Punjab and Sindh amended their respective laws to explicitly include immovable property within the definition of “economic activity.” Punjab’s change was introduced through the Finance Act, 2018, but the province only began taxing such rentals with the Finance Act, 2025. Under this new regime, commercial property rentals are now taxable, while residential ones are exempt.
This new tax has led to landlords arguing that they are facing impermissible double taxation, a single income stream being taxed by both federal and provincial authorities. This argument is supported by the precedent from the 2017 case Pakistan International Freight Forwarders, which suggests that there is no “concurrent taxing power” post-Eighteenth Amendment.
With the Punjab Revenue Authority now issuing tax notices, another round of constitutional litigation seems inevitable. The eventual judicial outcome will not only determine the fate of this specific tax but could also clarify the constitutional limits of provincial revenue generation, defining the boundaries of Pakistan’s fiscal federalism for years to come.
