Through the issuance of a Presidential Ordinance, the government is considering imposing a withholding tax on cash withdrawals from banks and banking instruments as well as on banking transactions that do not involve cash.
High-ranking officials revealed that the Federal Board of Revenue (FBR) had formulated the plan as a significant revenue-generating measure, but that Ishaq Dar, the finance minister, has not completed or approved it.
“Yes, there are three ideas, including the reintroduction of section 231A, which collects taxes on cash withdrawals, section 231AA, which collects taxes on banking instruments, and section 236P, which collects taxes on banking transactions other than cash withdrawals. They further stated that if the ideas are accepted, they will be included in the Presidential Ordinance that will be announced.
The FBR has asserted time and time again that several withholding tax provisions were abolished, which had the effect of lowering the percentage contribution of withholding taxes to indirect taxes. However, the legislation as it is now is in opposition to the strategy of lessening reliance on withholding taxes.
The Income Tax Ordinance of 2001’s section 231A, which was removed, stated that “any banking business shall deduct tax at, if the payment for cash withdrawal, or the sum of the payments for cash withdrawal in a day, exceeds Rs. 50,000.”
“Every banking company, non-banking financial institution, exchange company, or any authorized dealer of foreign exchange shall collect advance tax at the time of sale against cash of any instrument, including demand drafts, pay orders, call deposit receipts, special term deposits, special drawing rights, real-time clearing, or any other instrument of bearer nature, or on receipt of cash on cancellation of a contract,” according to the Income Tax Ordinance of 2001’s now-abolished section 231AA.
According to Section 236P of the 2001 Income Tax Ordinance,
- On the sale of instruments, such as demand drafts, pay orders, special deposit receipts, cash deposit receipts, short-term deposit receipts, call deposit receipts, and rupee travelers’ cheques, where payment for the total of all transactions exceeds Rs. 50,000 in a day, every banking company is needed to collect advance tax from a person whose name does not appear on the Active Taxpayers List.
- If payment for the total of all transactions exceeds Rs50,000 in a day, every banking company is obligated to collect advance tax from anyone whose name does not appear on the list of active taxpayers when they transfer any amount via check or clearing, interbank, or interbank transfers via check, online/telegraphic/mail transfer.
The proportion of withholding tax collected by the FBR from bank cash withdrawals decreased by 0.2% in 2020–21.
The fall in WHT collection cash withdrawals from banks is directly related to a rise in income tax return filers, which resulted in a decrease in WHT collection from non-filers under this head, according to the FBR’s yearbook book (2020-21). WHT tax rates did not alter during 2020–21, nevertheless.