Karachi, May 26, 2024 – Pakistan is likely to increase the withholding tax rate on bank cash withdrawals from 0.6 percent to 0.9 percent. This proposed amendment is expected to be a key component of the Federal Board of Revenue (FBR)’s forthcoming budget for 2024-25.
Currently, a withholding tax is levied on withdrawals exceeding Rs 50,000 in a single day from the bank accounts of non-filers. The proposal to elevate this rate from 0.6 percent to 0.9 percent aims to boost revenue generation in the upcoming fiscal year.
Sources within the FBR disclosed that the agency collected Rs 10 billion in withholding tax from cash withdrawals at banks in Karachi alone during the first 10 months of the current fiscal year. This substantial figure underscores the tax’s efficacy as a revenue tool.
The withholding tax on cash withdrawals was reinstated through the insertion of Section 231AB in the Income Tax Ordinance, 2001. This section mandates that banks deduct an advance adjustable tax at a rate of 0.6 percent from individuals not listed on the Active Taxpayer List (ATL). The tax applies to all cash withdrawals exceeding Rs 50,000 in a single day, including those made through credit cards or ATMs.
The withholding tax collected is adjustable against the taxpayer’s annual tax liability, providing a mechanism for eventual tax reconciliation. However, certain exemptions exist. The tax is not deducted in cases such as withdrawals made by the federal or provincial government, foreign diplomats, diplomatic missions in Pakistan, and individuals presenting a certificate from the Commissioner stating that their income for the tax year is exempt.
The anticipated increase to 0.9 percent is part of the government’s broader strategy to enhance revenue collection and ensure fiscal stability. By targeting non-filers and encouraging compliance, the FBR aims to widen the tax base and reduce reliance on indirect taxes.
As the budget discussions progress, this proposed hike in withholding tax is expected to be a focal point, with implications for banking transactions and broader economic activities. Stakeholders and policymakers alike will closely monitor the impact of this measure on revenue generation and taxpayer behavior.
The final decision will be revealed in the budget 2024-25, as the government seeks to balance fiscal imperatives with economic growth and stability.
