Chartered accountants seek revision of outdated cash payment thresholds to reflect inflation and ease compliance burden on businesses.
The Institute of Chartered Accountants of Pakistan (ICAP) has proposed increasing cash transaction limits for salary payments and other business expenditures through amendments to the Income Tax Ordinance, 2001, as part of its recommendations for the federal budget 2026-27.
In its budget proposals, ICAP said the existing monetary thresholds under various provisions of the Income Tax Ordinance were introduced to promote transparency and discourage tax evasion. However, the institute noted that these limits have remained unchanged for several years despite high inflation and the depreciation of the Pakistani rupee, making compliance increasingly difficult for businesses and taxpayers.
According to ICAP, Sections 21(c), 21(l), and 21(m) impose restrictions on the deductibility of business expenses where payments exceed specified cash limits. The institute argued that the current thresholds of Rs25,000 under Section 21(l)(a) and Rs32,000 under Section 21(m) no longer reflect prevailing business realities and create unnecessary compliance hurdles for routine commercial transactions.
Proposed Revisions to Cash Transaction Limits
| Section | Existing Limit (Rs) | Proposed Limit (Rs) |
| Section 21(l) proviso (a) | 25,000 | 75,000 |
| Section 21(m) | 32,000 | 50,000 |
| Section 153(1)(a) | 75,000 | 500,000 |
| Section 153(1)(b) | 30,000 | 250,000 |
ICAP also proposed a technical amendment to Section 21(c). The institute recommended inserting the word “such” before the second occurrence of the word “purchases” in the first proviso to clause (c) of sub-section (1) of Section 21.
According to ICAP, the amendment would clarify that the disallowance of expenditure applies only to purchases for which withholding tax was not deducted at the time of payment, thereby removing ambiguity in the interpretation of the law.
The institute emphasized that revising the monetary thresholds would align tax provisions with current economic conditions, reduce administrative burdens on taxpayers, and improve the overall ease of doing business.
ICAP noted that persistent inflation and rising operating costs have substantially reduced the practical relevance of the existing limits, which were set years ago under different economic circumstances.
Regarding salary payments, the institute highlighted that the current threshold for cash salary payments is now lower than minimum wage levels prescribed by provincial governments, making compliance impractical for many employers and employees.
The institute said updating these limits would help establish a more balanced and realistic tax framework while preserving the objective of documenting economic activity and ensuring compliance with tax laws.
Tax experts believe the proposed changes could provide relief to businesses facing higher operating costs, although any increase in cash transaction limits may also prompt debate over maintaining adequate documentation and transparency within the economy.
