FBR proposes to double withholding tax on non-filers’ cash withdrawals

ISLAMABAD: The Federal Board of Revenue (FBR) is planning to raise the withholding tax on cash withdrawals by non-filers of income tax returns in a move aimed at tightening the net around those who remain outside the tax system. 

Officials familiar with the discussions say the FBR has proposed doubling the tax rate from the current 0.6 per cent to 1.2 per cent for individuals who withdraw more than Rs50,000 in cash from banks in a single day and are not listed as active taxpayers. The measure is part of the government’s wider efforts to boost revenue and push more people into the formal tax net in the next fiscal year. 

If approved, the revised rate will take effect from July 1, 2025, as part of the Finance Bill for 2025-26. 

But the government isn’t stopping there. It is also considering a much stricter approach by completely removing the status of “non-filer”. Under this plan, anyone who does not file their returns could be declared an “ineligible person”, effectively barring them from carrying out any formal financial transactions. 

The National Assembly’s Standing Committee on Finance and Revenue has already backed this direction, recently approving the Tax Laws (Amendment) Bill, 2024, which lays the groundwork for tougher restrictions on non-filers starting next year. 

While the idea of eliminating all tax concessions for non-filers is on the table, officials say it may be implemented gradually to avoid a sudden drop in revenue. For now, increasing the tax on cash withdrawals is seen as a practical first step. 

At present, Section 231AB of the Income Tax Ordinance allows banks to deduct a 0.6 per cent tax on cash withdrawals exceeding Rs50,000 per day for individuals not appearing on the Active Taxpayers List. This rule also applies to ATM and credit card withdrawals. The entire amount is taxed if the daily threshold is crossed. 

The increase would mean non-filers will pay double the current rate on these transactions, further raising the cost of staying out of the tax system. 

With the upcoming budget, the government is preparing to roll out a range of measures to tighten tax enforcement, as it looks to improve revenue collection and address long-standing gaps in compliance. 

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