Pakistan has recently implemented a withholding tax on cash withdrawals, causing confusion among the general public. The withholding tax on cash withdrawal is a tax the government collects from individuals who withdraw cash from banks. This article will provide an overview of the withholding tax on cash withdrawals in Pakistan, including its purpose, rates, and exemptions.
Purpose of Withholding Tax on Cash Withdrawals
The government of Pakistan implemented the withholding tax on cash withdrawals to discourage the use of cash in transactions and encourage the use of electronic payments. The tax is also intended to bring the informal economy into the formal economy by encouraging transactions through bank accounts. The government hopes that the withholding tax on cash withdrawals will increase revenue collection and bring more people into the tax net.
Rates of Withholding Tax on Cash Withdrawals
The withholding tax rate on cash withdrawals depends on the amount of cash withdrawn. According to the Income Tax Ordinance 2001, if an individual withdraws more than Rs. 50,000 in a day, a withholding tax of 0.6% is applicable. For example, if an individual withdraws Rs. 100,000 daily, a withholding tax of Rs. 600 will be deducted from the amount withdrawn. Moreover, you can use this Pakistan tax calculator tool to make your calculations convenient.
Exemptions from Withholding Tax on Cash Withdrawals
The government of Pakistan has provided some exemptions from the withholding tax on cash withdrawals. The following individuals and transactions are exempt from the tax:
- Senior citizens aged 60 years or above
- Transactions made by the federal or provincial government or local authority
- Withdrawals made for payment of college or university fees
- Withdrawals made for payment of medical expenses
Individuals who fall under these categories do not have to pay the withholding tax on cash withdrawals.
Impact of Withholding Tax on Cash Withdrawals
The implementation of withholding tax on cash withdrawals has had both positive and negative impacts on the economy of Pakistan. On the positive side, it has encouraged using electronic payments, a more secure and efficient transaction method. It has also brought more people into the tax net, increasing revenue collection for the government.
On the negative side, the tax has burdened individuals who must withdraw cash for legitimate reasons. The tax has also led to a decrease in cash transactions, which has impacted small businesses that rely on cash transactions.
The withholding tax on cash withdrawals is a tax implemented by the government of Pakistan to encourage the use of electronic payments and bring more people into the tax net. The tax applies to individuals who withdraw more than Rs. 50,000 daily and is levied at a rate of 0.6%. Senior citizens, government transactions, college and university fees, and medical expenses are exempt from the tax. While the tax has positively and negatively impacted the economy, it remains essential for the government to increase revenue collection and encourage electronic payments.