Islamabad, March 3, 2025 – In a notable development, the Federal Board of Revenue (FBR) has successfully collected Rs 5.71 billion as advance tax on cash withdrawals during the first seven months of the fiscal year 2024-25, from July to January. This tax is levied on individuals making large cash withdrawals from banks who are not listed on the Active Taxpayers’ List (ATL).
The collection figures, as reported by sources within the FBR, pertain to the collections made by the Large Taxpayers Office (LTO) in Karachi. Data from the LTO Karachi reveals that there has been a slight dip in the advance tax collection, which fell by 12% compared to the Rs 6.46 billion collected during the same period of the previous fiscal year.
This tax, enforced under Section 231AB of the Income Tax Ordinance, 2001, requires all banking institutions to deduct an adjustable tax at a rate of 0.6% on cumulative daily cash withdrawals exceeding Rs 50,000. However, this provision is applicable only to individuals whose names are not included in the ATL. The advance tax on cash withdrawals was first introduced under Section 231A but was initially abolished under the Finance Act, 2021. It was later reinstated with some modifications to improve its effectiveness.
The decline in advance tax revenue, while noteworthy, is being viewed positively by FBR officials, as it points toward an increase in tax compliance among individuals. A reduction in the tax collections suggests that more individuals are filing their tax returns to avoid the additional tax burden imposed on large cash withdrawals. This shift is seen as a step forward in strengthening the formal economy and encouraging greater participation in the tax system.
January 2025 saw a particular drop in the collections, with the advance tax on cash withdrawals declining by 16%, amounting to Rs 803 million, compared to Rs 953 million collected in January 2024. While this reduction in tax revenue may raise concerns at first glance, it highlights a significant trend toward formalizing financial transactions. This shift is aligned with the government’s broader efforts to encourage more individuals to enter the tax system, thereby reducing the reliance on cash-based transactions and promoting transparency in the economy.
The FBR’s strategy to impose an advance tax on cash withdrawals is a part of the government’s ongoing efforts to expand the taxpayer base, ensure fair tax collection, and ultimately achieve economic reforms. By incentivizing tax filing, the government aims to improve revenue generation while discouraging informal, unregistered financial practices. These efforts are particularly crucial as the country seeks sustainable economic growth, driven by enhanced tax compliance and the formalization of its economy.
While some might view the reduction in tax collections as a negative development, FBR officials believe it marks a positive trend. It indicates that more people are becoming part of the formal tax-paying sector, which should translate into stronger long-term economic growth. As tax compliance continues to rise, the government is hopeful that this will lead to more sustainable, transparent, and equitable economic practices across the nation.
In conclusion, the Rs 5.71 billion advance tax collected by the FBR on cash withdrawals reflects both a challenge and a victory for Pakistan’s tax system. Although there has been a slight decline in revenue, the growing trend toward formal tax compliance is expected to yield far-reaching benefits in terms of revenue generation, economic stability, and an expanded taxpayer base in the future.