Tax Collection on Cash Withdrawals Drops 15% in Q1 FY2025

Tax Collection on Cash Withdrawals Drops 15% in Q1 FY2025

Karachi, October 29, 2024 — The Federal Board of Revenue (FBR) reported a 15% decline in tax collection on cash withdrawals in the first quarter (Q1) of the fiscal year 2024-25, highlighting the effects of an aggressive return-filing drive.

Data of a leading tax collecting arm of the FBR shows that advance tax on cash withdrawals totaled PKR 2.45 billion from July to September 2024, down from PKR 2.90 billion in the corresponding quarter of the previous fiscal year.

FBR sources indicate that the decreased collection is attributed largely to an expanded campaign encouraging non-filers to submit tax returns. This drive has reportedly shifted many individuals and businesses into filing status, thus exempting them from the advance tax on cash withdrawals—a measure designed to incentivize compliance.

The advance tax on cash withdrawals remains a significant revenue stream for the FBR. This tax is applicable only to individuals and businesses not appearing on the Active Taxpayers’ List (ATL). To widen the tax base and counter evasion, the FBR reintroduced this tax after a two-year hiatus.

Originally, the advance tax on cash withdrawals was mandated under Section 231A of the Income Tax Ordinance. However, in 2021, the provision was removed. Through the Finance Act of 2023, the FBR reintroduced the tax under the newly added Section 231AB, effective for the fiscal year 2023-24 onward.

Under Section 231AB, banks are required to deduct an adjustable 0.6% tax on cash withdrawals from individuals whose names do not appear on the ATL if daily withdrawals exceed PKR 50,000. The cumulative limit ensures that even multiple smaller transactions that surpass this threshold within a single day are subject to the tax, reinforcing the push for tax compliance.

The FBR’s decision to revive this tax and couple it with its expansive return-filing initiative reflects a dual-pronged strategy. On one hand, it provides a disincentive for cash-heavy transactions from non-compliant individuals, and on the other, it encourages taxpayers to file returns, thus widening the tax net.

FBR officials emphasize that while the drop in collection from this source could appear counterproductive at a glance, the broader success of the return-filing campaign is expected to bring long-term benefits to revenue generation. Increased compliance will ultimately contribute to a more robust tax base, which is crucial for achieving sustainable revenue growth.

Looking ahead, the FBR aims to continue refining its policies to balance immediate revenue requirements with the long-term goal of fostering a compliant and transparent economic landscape.