The Federal Board of Revenue (FBR) has proposed increasing the withholding tax on cash withdrawals by non-filers from 0.6% to 1.2%. This move aims to boost revenue collection in the 2025-26 fiscal year. Additionally, stricter financial restrictions will be imposed on non-filers, including potential bans on economic transactions. The changes are part of the Finance Bill 2025-26.
New Withholding Tax Rates
Currently, non-filers pay a 0.6% tax on cash withdrawals exceeding Rs 50,000 in a single day. The FBR plans to double this rate to 1.2% starting July 2025. This adjustment is expected to generate significant additional revenue while discouraging tax evasion. The government is also considering further restrictions on non-filers’ financial activities.
Abolishing the Non-Filer Category
The government intends to eliminate the non-filer classification, replacing it with “ineligible persons.” These individuals will face severe restrictions on financial transactions, including banking activities. The goal is to compel more people to file tax returns and broaden the tax base. The proposed changes will be enforced through the Finance Bill 2025-26.
Standing Committee’s Approval
The National Assembly Standing Committee on Finance and Revenue has approved the Tax Laws (Amendment) Bill 2024. This paves the way for stricter economic restrictions on non-filers from July 2025. The committee’s report supports the FBR’s strategy to enhance tax compliance and increase revenue through punitive measures.
Also Read: IMF Allows Pakistan to Cut Tax Rates for Salaried Class in Upcoming Budget
FBR to Share Data with Banks
To enforce these measures, the FBR will share income tax return data with banks. This will help financial institutions identify non-filers and apply the higher withholding tax. The move aims to improve transparency and ensure compliance with tax regulations. Banks will be required to deduct tax at the revised rate for non-filers.
Gradual Implementation of Tax Reforms
Due to potential revenue impacts, the government may not remove all withholding taxes for non-filers immediately. Instead, a phased approach is being considered, starting with the increased tax on cash withdrawals. This cautious strategy ensures revenue stability while pushing for higher tax compliance.
Current Tax on Cash Withdrawals
Under Section 231AB of the Finance Act 2023, banks deduct a 0.6% tax on cash withdrawals exceeding Rs 50,000 in a day by non-filers. This includes withdrawals via credit cards and ATMs. The FBR’s proposal to raise this rate to 1.2% reflects its aggressive stance on tax enforcement.
Impact on Non-Filers
Non-filers will face higher costs for accessing cash, making tax evasion more burdensome. The increased withholding tax, coupled with transaction restrictions, aims to push individuals into the tax net. The government hopes these measures will encourage voluntary compliance and reduce the informal economy.
Revenue Implications
Doubling the withholding tax rate is expected to significantly boost FBR’s revenue. However, critics argue that excessive taxation could discourage banking transactions. The government must balance revenue generation with economic growth while ensuring fair tax policies.
Conclusion
The FBR’s plan to double the withholding tax on non-filers’ cash withdrawals marks a major step toward stricter tax enforcement. With additional financial restrictions, the government aims to expand the tax base and increase revenue. These reforms, effective from July 2025, will reshape Pakistan’s tax landscape, promoting compliance and reducing evasion.
