KP cabinet clears 2026-27 budget, introduces property tax exemptions, digital tax for hotels

PESHAWAR: The Khyber Pakhtunkhwa provincial cabinet on Friday formally approved the draft budget and Finance Bill for the fiscal year 2026-27, introducing targeted property exemptions alongside strict electronic-sales taxes for the hospitality sector.

The cabinet meeting was chaired by Khyber Pakhtunkhwa Chief Minister Sohail Afridi.

Following the sign-off, Afridi departed for the provincial assembly to formally present the fiscal layout before the legislature.

The proposed financial measures are scheduled to take effect from July 1, 2026.

Real Estate Tax Relief and Enforcement

The draft Finance Bill 2026 introduces a mix of relief measures for low-income homeowners and heightened enforcement mechanisms for tax compliance:

Residential properties measuring five marlas or less will remain completely exempt from property tax.

Taxpayers who settle their outstanding legacy property taxes before the December 31 deadline will receive a 30 per cent discount.

The bill empowers provincial authorities to seal properties belonging to chronic tax defaulters.

The provincial government has restructured the taxation framework for the hospitality sector in an effort to document and bring into the formal tax net the largely cash-based industry, linking hotel service tax rates directly to integration with digital point-of-sale systems, under which hotels connected to POS will be charged a 5 per cent tax on services.

Meanwhile, opposition parties in Khyber Pakhtunkhwa Assembly have called a pre-budget consultative meeting in Peshawar.

The meeting will bring together representatives from all opposition parties represented in the provincial assembly, as lawmakers prepare their strategy ahead of the budget session.

The gathering will be chaired by Opposition Leader Dr Abidullah, who is expected to preside over discussions on the provincial budget and coordinate the opposition’s response in the assembly.

Those not integrated will face a higher rate of 10 per cent, alongside the introduction of a new standardized tax schedule for commercial vehicles and an annual token tax of Rs1,000 for three-plus seater rickshaws.

The introduction of the annual token tax on three-plus seater rickshaws marks a widening of the transport tax net, alongside a completely overhauled tax schedule for larger commercial vehicles operating across the province.