The administration is considering passing a Presidential Ordinance that would impose a withholding tax on all banking transactions, including those that don’t involve actual cash withdrawals from banks or financial instruments.
The proposal, which the Federal Board of Revenue (FBR) has drafted as a significant revenue-generating step, has not been finalized or approved by Finance Minister Ishaq Dar, according to highly placed officials.
Yes, there are three proposals that have been written, including the reinstatement of Section 231A, which collects tax on cash withdrawals; Section 231AA, which collects tax on banking instruments; and Section 236P, which collects tax on banking transactions carried out in a way other than cash. If the proposals are accepted, they would be included in the presidential ordinance that would be issued.
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The FBR has claimed on numerous occasions that certain withholding tax provisions have been eliminated, lowering their percentage contribution to indirect taxes. The proposed remedy, however, is in opposition to the objective of reducing the reliance on withholding taxes.
The Income Tax Ordinance of 2001’s Section 231A, which was later repealed, required “any banking business shall deduct tax at, if the payment for cash withdrawal, or the sum of the payments for cash withdrawal in a day, exceeds Rs.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 an authorized dealer of foreign exchange is required to collect advance tax at the time of sale against cash of any instrument, including demand draughts, pay orders, call deposit receipts, special term deposits, special drawing rights, real-time clearing, or any other bearer nature instrument, or on receipt of cash on cancellation of a contract, according to Income Tax Ordinance of 2001’s No. 58.
In 2020–21, the FBR’s withholding tax collection from bank cash withdrawals decreased by 0.2%.
According to the FBR’s yearbook (2020–21), the decline in WHT collection cash withdrawals from banks is directly related to an increase in income tax return filers, which led to a decline in WHT collection from non-filers under this head. However, WHT tax rates remained unchanged in 2020–21.