Banking, financial and payment-processing services

By Junaid IqbalUpdated 1 August 20265 min read

CA Finalist, ACCA FinalistEditorial team: Chartered Advisory Team of Chartered Accountants

Quick answer: Fee and commission-based banking, financial and payment-processing services are taxable services under provincial sales tax, administered by the relevant authority, with Islamabad under FBR. Core interest or mark-up earned on lending and financing is generally not a charge for a service and typically falls outside the net, so banks must separate their taxable fee income from non-taxable financing income.

Banks, financial institutions and the fast-growing payments sector provide services taxed by the provinces — but with an important line running through them. The many fees and commissions banks charge are taxable services, while the interest or mark-up they earn on financing generally is not. Separating the two is central to a financial institution's sales tax compliance. This guide explains the split.

Fee-based services are taxable

Fee and commission-based banking, financial and payment-processing services are taxable services under provincial sales tax, administered by the relevant authority — SRB, PRA, KPRA or BRA — with Islamabad under FBR. Banks levy a wide range of fees and commissions — for account services, transactions, remittances, letters of credit, guarantees, advisory and much more — and these charges for services generally fall within the provincial net. So a bank charges provincial sales tax on this fee and commission income and accounts for it to the province. The sheer number of distinct charges makes accurate classification a real task for a financial institution.

Financing income is generally outside

The crucial distinction is that core interest or mark-up earned on lending and financing is generally not a charge for a service — it is the return on financing — and typically falls outside the sales tax net. The margin a bank earns between what it pays for funds and what it charges borrowers is not a service fee in the sales tax sense. This is why a bank must carefully distinguish its taxable fee and commission income from its non-taxable financing income: the two are treated very differently, and lumping them together would either wrongly tax financing returns or wrongly exempt service fees. The fee-versus-financing line is the organising principle of the sector's sales tax treatment, and some financial services may additionally be exempt, which carries its own input-tax consequences.

Payment processing and fintech

The payments and fintech sector sits firmly on the taxable side. Fees charged by payment processors, gateways and fintech providers for their services generally fall within the provincial services regime, in the same way as bank service charges. As digital payments and fintech grow — and as e-commerce drives transaction volumes — this is an area provinces have increasingly focused on, so a payments business should treat its service fees as taxable and confirm the specific treatment with the relevant authority. Because banks and payment networks operate nationally, the usual place-of-provision and multi-registration considerations apply across the provinces in which they render services.

Worked illustration. A bank charges customers various fees — for remittances, letters of credit and account services — and earns mark-up on its financing. In its province, it accounts for provincial sales tax on the fee and commission income as taxable services, while treating the financing mark-up as outside the net. A payment gateway similarly charges provincial sales tax on its processing fees, confirming the treatment with the authority as the fintech rules evolve.

Common mistakes

Failing to separate taxable fee and commission income from non-taxable financing income.
Treating interest or mark-up as a taxable service.
Overlooking that payment-processing and fintech fees are taxable services.
Ignoring exempt financial services and their input-tax consequences.

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Where it fits

Financial services turn on the fee-versus-financing line and the exempt-versus-taxable distinction, and payments connect to e-commerce. For province detail, see the Sindh (SRB) and Punjab (PRA) overviews. Bank fees and payment processing are taxable services; core financing income generally is not.

Confirm before you rely on this. The treatment of banking fees, financing income and fintech services is set by provincial law and the relevant authorities and change regularly. Confirm the current position from SRB, PRA, KPRA, BRA or FBR, or a qualified tax adviser.

Where the rate actually comes from

Fee-based financial services are generally within the net while financing income generally is not, which makes the split between fee and margin the decisive working rather than the rate applied to the fee.

The standard rate is 16 per cent in Punjab and 15 per cent in Sindh, Khyber Pakhtunkhwa and Balochistan, with telecommunication services higher at 19.5 per cent and Islamabad Capital Territory administered by FBR. Sindh has also moved from a positive list to a negative list, so a Sindh service is taxable unless it is specifically exempt — if you concluded some years ago that you were outside the net, that conclusion needs re-testing. The full picture is in the rates by province guide; the authoritative figure for your own category is in the current working tariff published by Sindh Revenue Board or the authority for your province.

Source check: 14 September 2026. Standard provincial rates and the Sindh negative-list reform are sourced in the rates-by-province guide. The category treatment described above is general orientation and has not been confirmed line by line against any authority's current schedule — read your own entry in the applicable working tariff before invoicing.

Sources

This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.

Questions people also ask

Are banking and financial services subject to sales tax?

Fee and commission-based banking, financial and payment-processing services are taxable services under provincial sales tax, administered by the relevant authority, with Islamabad under FBR. So banks charge provincial sales tax on the many fees and commissions they levy for services, and payment-processing and fintech service fees fall within the same regime.

Is interest or mark-up on a loan subject to sales tax?

Generally not. Core interest or mark-up earned on lending and financing is usually treated as the return on financing rather than a charge for a service, so it typically falls outside the sales tax net. This is why banks must distinguish their taxable fee and commission income from their non-taxable financing income, which are treated very differently.

How are payment-processing and fintech services treated?

As taxable services. Fees charged by payment processors, gateways and fintech providers for their services generally fall within the provincial services regime in the same way as bank service charges. As digital payments and fintech grow, this is an area provinces have increasingly focused on, so the specific treatment should be confirmed with the relevant authority.

Scope note: General educational information for Pakistan, not a legal opinion or a substitute for advice based on your documents. Law, notifications, portal procedures and individual facts can change the result.

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