Recent reports circulating online claimed that a 20.5% tax was imposed on cash sales exceeding Rs2 lakh. However, the Federal Board of Revenue (FBR) has officially clarified the situation following amendments made under the Finance Act 2025.
According to FBR officials, no direct tax has been levied on high-value cash transactions. Instead, a new clause in the Income Tax Ordinance, 2001 restricts expense deductions for such transactions. If a payment exceeding Rs2 lakh is made in cash or through non-digital, non-banking channels for a single invoice, 50% of the claimed expense will be disallowed.
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The measure aims to encourage digital payments and improve economic documentation, said FBR representatives during a Senate Standing Committee meeting. The officials emphasized that the policy targets businesses relying heavily on cash transactions, pushing them toward formal banking channels.
Despite this intention, the amendment has drawn criticism from some members of the government alliance and industry experts, who fear it may burden traders and small businesses operating predominantly in cash.
Additionally, enforcement challenges loom. Many individuals and Associations of Persons (AOPs) with turnover below Rs300 million are exempt from audits, making it difficult to ensure compliance and track violations.
The FBR reiterated that this reform is part of a broader strategy to modernize tax collection, widen the tax base, and reduce the informal economy’s footprint. Further clarification is expected as the rule comes into practical effect.
