Islamabad, May 31, 2025 – The federal government is preparing to tighten its grip on tax evasion in the upcoming fiscal year by significantly raising the financial burden on non-filers. According to official sources, a proposal is under serious consideration to double the withholding tax rate on cash withdrawals by individuals not listed on the Active Taxpayer List (ATL).
Currently set at 0.6 percent, the tax on cash withdrawals made by non-filers could be increased to 1.2 percent as part of efforts to bolster revenue collection. This measure is expected to generate an additional Rs. 15–20 billion in tax revenue during the 2025–26 fiscal year. The move forms part of a broader strategy to increase compliance, discourage informal financial activity, and strengthen the country’s tax base without overburdening compliant taxpayers.
Under the existing framework, the Finance Act 2023 had already reintroduced a withholding tax on cash withdrawals by individuals whose names are not included in the ATL. Section 231AB of the Income Tax Ordinance mandates that every banking institution deduct an adjustable advance tax at the rate of 0.6 percent from non-filers withdrawing more than Rs. 50,000 in cash in a single day. This regulation also applies to withdrawals made through ATMs and credit card-linked bank accounts.
If the proposed amendment is approved in the federal budget for 2025–26, non-filers withdrawing large amounts of cash will be subject to an increased deduction of 1.2 percent. This effectively doubles the financial penalty for remaining outside the formal tax net and is aimed at compelling more individuals to register and file their taxes.
The government’s strategy reflects a broader push by the Federal Board of Revenue (FBR) to tighten enforcement and improve documentation of the economy. Officials argue that non-filers place an undue burden on the system, contributing to revenue shortfalls and weakening public service delivery. Increasing the cost of staying outside the tax net is seen as a practical step toward encouraging voluntary compliance.
Banking industry stakeholders have been informed of the impending change and are preparing for its implementation, which will likely require updates to banking software systems and transaction monitoring protocols to apply the revised tax rate uniformly.
While some critics argue that such measures could deter the use of formal banking channels, especially among low-income individuals or small business owners who are yet to be integrated into the tax framework, proponents of the policy believe that these targeted financial disincentives are necessary to achieve long-term fiscal sustainability.
The proposed withholding tax increase is part of a series of revenue measures expected to be introduced in the 2025–26 federal budget. As the government looks to secure additional funding and reduce reliance on external borrowing, expanding the domestic tax base through policy reforms remains a top priority.
A formal announcement on the revised tax rate is anticipated during the upcoming budget session, with implementation expected from July 1, 2025. All eyes are now on the finance ministry’s upcoming proposals and the broader fiscal roadmap aimed at reinforcing economic discipline and equitable taxation.