The government is considering imposing withholding tax on cash withdrawals from banks and banking instruments, and withholding tax on banking transactions other than through cash, through the promulgation of a Presidential Ordinance.
Highly-placed officials confirmed to ProPakistani that the Federal Board of Revenue (FBR) has drafted the proposal as a major revenue generation measure, but the same has not been finalized or approved by Finance Minister Ishaq Dar.
“Yes three proposals have been chalked out including restoration of section (231A); Collection of tax on cash withdrawal; section (231AA) Collection of tax on banking instruments and section (236P) collection of tax on banking transactions other than through cash. If the proposals are approved, it would be made part of the Presidential Ordinance to be promulgated”, they added.
The FBR has repeatedly claimed that many withholding tax provisions were eliminated and consequently, the percentage contribution of withholding taxes indirect taxes has also been reduced. But the proposed measure is against the policy of reducing reliance on withholding taxes.
The abolished section 231A of the Income Tax Ordinance 2001 stated: “Every banking company shall deduct tax at, if the payment for cash withdrawal, or the sum total of the payments for cash withdrawal in a day, exceeds Rs. 50,000.
The abolished section 231AA of the Income Tax Ordinance 2001 says: “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 right, real-time clearing, or any other instrument of bearer nature or on receipt of cash on cancellation of any of these instruments.
Under section 236P of the Income Tax Ordinance 2001,
The FBR has witnessed a decrease of 0.2 percent in withholding tax collection from cash withdrawals from banks during 2020-21.
According to the FBR’s year book (2020-21), the decline in WHT collection cash withdrawals from banks is the direct consequence of a higher number of income tax return filers, which reduced collection of WHT from non-filers under this head. However, there was no change in WHT tax rates during 2020-21.