From July 2024, there will be an increase in tax on cash withdrawals

June 14, 2024

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There will be an increase in tax on cash withdrawals

From July 2024, the tax on cash withdrawals will increase

Cash Becoming More Expensive in Pakistan? Proposed Increase in Tax on Cash Withdrawals for Non-Filers Starting July 2024

In Pakistan, people who don’t file taxes might soon pay more fees to take out cash from ATMs and banks.

Here’s a simple explanation of the proposed tax increase and its potential impact:

Why the Increase?

Finance Minister Muhammad Aurangzeb has proposed raising taxes on cash withdrawals for people who haven’t filed their taxes.

This step aims to increase government income and possibly obtain a vital bailout from the International Monetary Fund (IMF).

What’s Changing?

The government aims to achieve two primary objectives through this tax increase:

Promote Tax Filing: The government plans to encourage non-filers to register and file tax returns by imposing slightly higher fees on cash withdrawals. This strategy aims to expand the tax base, ultimately boosting government revenue.
To satisfy IMF conditions: The suggested increase in taxes meets the conditions set by the IMF for a possible financial rescue plan. The IMF regularly proposes strategies aimed at enhancing tax collection efficiency and decreasing dependence on cash transactions, with the goal of promoting greater financial transparency.

Budget 2024-25 Reveals Possible Tax Hike:

Currently, individuals who are not registered as filers are subjected to a withholding tax rate of 0.6% on cash withdrawals.

The proposed budget includes a plan to increase the tax rate to 0.9%. If approved, starting July 1, 2024, a cash withdrawal of Rs. 100,000 would result in a Rs. 900 tax deduction.

Effects on non-filers:

Non-filers are expected to shoulder the majority of this tax hike, further increasing their current tax responsibilities. However, the government’s intention is that this measure will motivate non-filers to become part of the formal tax system, thereby contributing positively to the country’s financial stability.

Advantages of a Broader Tax Base:

The increased revenue resulting from this tax increase can play a pivotal role in the government’s fiscal strategy. It has the potential to reduce budget deficits, foster economic stability, and facilitate access to essential funds from the IMF for pivotal reforms and development initiatives.

The Path Ahead:

As Budget 2024-25 progresses, the planned hike in withholding tax for non-filers stands out as a pivotal development. This move underscores the government’s dedication to fiscal prudence and its efforts to bolster economic reforms by enhancing revenue generation and securing international financial backing.

Stay Updated:

Those who do not file taxes and often withdraw cash should stay informed about this potential change and how it could affect their transactions. Monitor official budget announcements for confirmation of the tax hike, and consider using digital payments or mobile banking as alternatives to potentially reduce any impact.

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