ISLAMABAD – In what is being dubbed a bombshell ahead of the federal budget 2025-26, the government of Pakistan is reportedly set to double the withholding tax on cash withdrawal from banks, a move that could shake businesses and individuals alike.
Sources said that the withholding tax rate on cash withdrawal is expected to jump from the current 0.6% to a staggering 1.2%, as part of sweeping changes under the Income Tax Ordinance, 2001. The controversial measure is aimed at tightening the noose on undocumented transactions and widening the tax net — but at what cost?
For both businesses and salaried individuals, this sharp increase in tax on cash withdrawals could mean thousands, if not millions, of rupees in additional deductions at source. “This is a direct hit on liquidity and operational cash flows,” warned a senior tax consultant in Karachi. The pain will be especially intense for non-filers, as the government is planning to further widen the tax gap between filers and non-filers to force compliance.
In fact, the reliance on withholding taxes — particularly from cash withdrawal and banking transactions — will remain a major pillar of the tax strategy in the upcoming fiscal year. Withholding taxes currently contribute over 70% of Pakistan’s total direct tax collection, and that reliance is only expected to grow.
In addition to the cash withdrawal tax hike, the government is also considering a 1.5% withholding tax on imports, and raising rates on interest income. Further proposals include increased taxes on supplies, services, contracts, and possibly a rationalization of tax on immovable properties to provide relief to the real estate sector.
The 2025-26 budget, set to be unveiled on June 10, is shaping up to be one of the most aggressive in recent memory. With the average citizen already struggling with inflation, this proposed cash withdrawal tax hike is being viewed as yet another burden. Critics argue that instead of promoting a documented economy, it may encourage hoarding and off-the-books cash dealings — the exact opposite of what the government claims it wants.
Brace for impact — your next cash withdrawal might cost more than you think.