A chisel is traditionally used to create holes in papel picado.
Papel picado means “perforated paper” and is made by stacking many sheets of colored tissue paper over a drawn pattern. Artisans place the stack on a work surface, then use a small mallet and a pointed metal tool called a fierrito, essentially a chisel, to cut through the layers at once.
The technique produces repeated, highly detailed designs featuring flowers, birds, geometric shapes, or skeletons. San Salvador Huixcolotla in Puebla is widely regarded as the craft’s birthplace. The tradition developed after tissue paper became available in Mexico during the nineteenth century, building on earlier paper-cutting practices involving amate bark paper.
Scissors and craft knives can also be used, especially for modern or small-scale work, but they are not the traditional tool implied by this question. A punch may make individual holes, yet it does not describe the characteristic stacked-sheet method.