Islamabad, November 27, 2024 – Tax revenue from cash withdrawals in Pakistan witnessed a sharp decline, plunging 21% year-on-year (YoY) in October 2024.
According to figures from the Federal Board of Revenue (FBR), the advance tax collection dropped to Rs 721 million, compared to Rs 908 million in the same month last year.
The Large Taxpayers Office (LTO) Karachi reported the data, highlighting the impact of revised tax measures under the Finance Act, 2023. The reintroduction of Section 231AB to the Income Tax Ordinance, 2001, brought back the advance tax on cash withdrawals, aiming to target individuals with taxable income who remain outside the tax net.
Key Provisions of Section 231AB
Under the section, every banking institution is required to deduct an adjustable tax at a rate of 0.6% on daily cash withdrawals exceeding Rs 50,000, provided the individual’s name does not appear on the Active Taxpayers’ List (ATL). The limit applies to the aggregate sum of cash withdrawals made in a single day.
Previously, this tax was enforced under Section 231A, which was abolished in the Finance Act, 2021, only to be reinstated two years later with modifications.
Implications of Decline
FBR officials attributed the reduction in tax collection to a positive outcome of the measure. The drop suggests that more individuals are filing their tax returns to become compliant taxpayers, thereby avoiding the additional tax levied on cash withdrawals.
Despite the YoY decline, cumulative tax collection from cash withdrawals during the first four months of the fiscal year 2024-25 stood at Rs 3.17 billion, down from Rs 3.81 billion during the same period in the previous fiscal year.
The reduction in revenue, while concerning at face value, underscores a shift towards formalizing the economy by encouraging individuals to join the tax net. This aligns with the government’s broader objective of expanding the taxpayer base and improving compliance to ensure a fair distribution of tax burdens.
