Through the issuance of a Presidential Ordinance, the government is considering imposing 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 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 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.
Income Tax Ordinance 2001
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,
- Every banking company shall collect advance tax from a person whose name does not appear in the Active Taxpayers List on the sale of instruments, including demand drafts, pay orders, special deposit receipts, cash deposit receipts, short-term deposit receipts, call deposit receipts and rupee travelers’ cheque, where payment for sum total of all transactions exceed Rs. 50,000 in a day.
- Every banking company shall collect advance tax from a person whose name is not appearing on the active taxpayer’s list on the transfer of any sum through cheque or clearing, interbank or interbank transfers through cheque, online/telegraphic/mail transfer, where payment for sum total of all transactions exceeds Rs50,000 in a day.
The amount 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 (2020-21). WHT tax rates did not alter during 2020–21, nevertheless.
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