The government of Pakistan is taking measures to restore the withholding tax on cash withdrawals from banks for non-filers. This decision, which is expected to be implemented in the upcoming budget, is aimed at increasing revenue collection and promoting tax compliance. In this article, we will explore the government’s plans and the potential impact of this withholding tax on banking transactions.
1. Re-Imposition of Withholding Tax on Cash Withdrawals and Banking Transactions
According to reliable sources, the Federal Board of Revenue (FBR) is seriously considering the re-imposition of withholding tax on cash withdrawals, banking instruments, and banking transactions by non-filers. The government believes that this step will encourage non-filers to become tax compliant and contribute to the national exchequer.
2. Revenue Impact and Estimated Collection
The proposed withholding tax on banking transactions by non-filers is expected to have a significant revenue impact. It is projected to generate approximately Rs. 45 billion for the government. This infusion of funds will bolster the country’s financial resources and support various developmental projects and initiatives.
3. Elimination of Withholding Taxes with Low Revenue Impact
While the government is focused on enhancing revenue collection, it has also recognized the need to eliminate withholding taxes that have minimal impact on direct tax collection. In the upcoming budget (2023-24), several low-yield withholding taxes are likely to be abolished. This strategic move aims to streamline the tax system and prioritize taxes that yield substantial revenue for the government.
4. Abolishment of Withholding Tax on Event Functions
As part of a previous mini-budget in February 2023, the government introduced section 236CB, which imposed a 10 percent advance tax (withholding tax) on the total bill amount for individuals organizing or hosting functions in venues such as marriage halls, marquees, hotels, restaurants, commercial lawns, and clubs. However, this particular withholding tax, having a limited revenue impact, might be abolished in the upcoming federal budget (2023-24).
In conclusion, the government’s plan to restore the withholding tax on cash withdrawals from banks by non-filers is expected to have a substantial impact on revenue generation. By encouraging tax compliance and discouraging cash transactions outside the formal banking system, the government aims to strengthen the country’s financial position and support its developmental agenda. Simultaneously, the elimination of low-yield withholding taxes will streamline the tax system and optimize revenue collection. As the budget is announced, the true extent of these measures’ effectiveness will become apparent.