The tax on cash withdrawals in Pakistan has been a topic of significant discussion, especially as the government continues its efforts to broaden the tax base and formalize the economy. As of April 2025, this policy remains a critical component of Pakistan’s fiscal strategy, targeting non-filers to encourage tax compliance.
In this detailed article, we’ll explore the current state of the tax on cash withdrawals, its history, implications, exemptions, and what it means for individuals and businesses in Pakistan.
Pakistan Cash Withdrawal Tax
Key point: Non-filers pay 0.6% tax on withdrawals over PKR 50,000 daily, while filers pay 0% tax.
For Non-Filers
0.6% tax on amounts exceeding PKR 50,000 per day.
For Filers
0% tax – No tax applies regardless of withdrawal amount.
What is the Tax on Cash Withdrawal in Pakistan?
In Pakistan, the tax on cash withdrawal is an advance adjustable withholding tax imposed by the Federal Board of Revenue (FBR) under Section 231AB of the Income Tax Ordinance, 2001. This tax applies exclusively to individuals who are not listed on the Active Taxpayers List (ATL), commonly referred to as “non-filers.” As of April 2025, the tax rate stands at 0.6% on cash withdrawals exceeding PKR 50,000 in a single day. This applies to aggregate withdrawals, meaning the total amount withdrawn across all accounts in a day is considered when determining the threshold.
The primary objective of this tax is twofold:
- Revenue Generation: It contributes to the national treasury by taxing cash-based transactions.
- Economic Documentation: It encourages individuals to file income tax returns and shift toward a documented, digital economy.
Historical Context of the Cash Withdrawal Tax
The concept of taxing cash withdrawals is not new in Pakistan. It was first introduced in the Finance Act of 2005 with a rate of 0.5% on withdrawals exceeding PKR 25,000. Over the years, the policy has undergone several amendments:
- 2005-2019: The threshold was raised to PKR 50,000, and rates fluctuated between 0.3% for filers and 0.6% for non-filers. In 2019, the tax was abolished for filers, leaving only non-filers subject to the 0.6% rate.
- 2021: The tax was completely removed for all taxpayers via the Finance Act 2021, reflecting concerns about its impact on financial inclusion and the ease of doing business.
- 2023: The tax was reintroduced under Section 231AB in the Finance Act 2023, targeting non-filers again at 0.6%, following recommendations from the Reform and Revenue Mobilisation Commission (RRMC).
In May 2024, the FBR proposed increasing the rate to 0.9% to generate an additional PKR 15-20 billion in revenue for the fiscal year 2024-25. However, as of April 2025, this proposal has not been implemented, and the rate remains at 0.6%. This reflects ongoing debates about balancing revenue needs with economic growth and financial inclusion.
How Does the Tax Work in 2025?
Here’s a breakdown of how the tax operates today:
- Who Pays? Only non-filers, individuals or entities not appearing on the ATL, are liable. Tax filers, registered with the FBR and submitting annual returns, are exempt.
- Threshold: The tax applies to cash withdrawals exceeding PKR 50,000 in a single day, whether from ATMs, bank counters, or credit/debit card cash advances.
- Rate: A 0.6% tax is deducted by the banking company at the time of withdrawal. For example:
- Withdrawal of PKR 55,000 = PKR 330 tax
- Withdrawal of PKR 75,000 = PKR 450 tax
- Adjustability: This is an advance tax, meaning it can be adjusted against a taxpayer’s final tax liability if they file a return later.
If you want to learn more about filer and non-filer in pakistan , visit our Filer vs Non-Filer in Pakistan: Benefits, Disadvantages.
Exemptions
Certain entities and transactions are exempt from this tax:
- Federal and provincial governments.
- Foreign diplomats and diplomatic missions in Pakistan.
- Individuals with a certificate from the FBR Commissioner proving their income is tax-exempt for the year.
Implications for Individuals and Businesses
The tax on cash withdrawals has far-reaching effects on Pakistan’s economy and society. Here’s how it impacts various stakeholders:
For Non-Filers
- Increased Costs: Non-filers face higher transaction costs, making cash withdrawals less attractive. For instance, withdrawing PKR 100,000 incurs a PKR 600 tax.
- Incentive to File: The tax serves as a nudge to register with the FBR and join the ATL, potentially reducing overall tax burdens through compliance.
For Banks
- Reduced Cash Flow: Some experts argue that taxing withdrawals discourages people from depositing money in banks, especially non-filers who may prefer informal cash channels to avoid the tax.
- Administrative Burden: Banks must monitor and deduct the tax, adding to their operational responsibilities.
For the Economy
- Documentation Push: The policy aligns with the government’s goal to reduce the cash-based informal economy, which remains significant in Pakistan. With only 3.6 million out of 7.6 million registered taxpayers filing returns (less than 2% of the population of 246 million), this tax aims to bring more people into the tax net.
- Risk of Informal Growth: Critics warn that instead of compliance, non-filers might hoard cash outside the banking system, undermining financial inclusion efforts.
Recent Developments (Year 2025)
As of April 7, 2025, the tax on cash withdrawals remains at 0.6%, with no official adoption of the proposed 0.9% increase from 2024.
Discussions with the International Monetary Fund (IMF) during 2024 highlighted this measure as part of Pakistan’s revenue strategy, but resistance from stakeholders like the World Bank and local business communities has delayed changes.
The IMF has historically opposed such taxes, citing their regressive nature and potential to disrupt financial stability, especially amid Pakistan’s fragile foreign exchange reserves (reported at $4.38 billion in May 2023, with no significant updates by April 2025).
The FBR continues to emphasize that the tax is adjustable and not a final liability, aiming to counter public backlash. However, public sentiment on platforms like X reflects frustration, with users arguing it pushes people away from banks rather than into the tax net.
How to Avoid the Tax?
The simplest way to avoid this tax is to become an active taxpayer:
- File Your Tax Return: Register with the FBR and submit your annual income tax return to join the ATL.
- Stay Below the Threshold: Keep daily cash withdrawals under PKR 50,000 if you’re a non-filer.
- Go Digital: Use electronic transactions (e.g., mobile apps, cards) for payments, which are not subject to this tax.
Want more Tax Savings tipe explore our detailed article These Tax Exemptions Every Pakistani Employee Must Know.
As of 2025, Pakistan’s policy stands out globally for targeting everyday withdrawals by non-filers, reflecting its unique economic challenges.
The tax on cash withdrawal in Pakistan, at 0.6% for non-filers exceeding PKR 50,000 daily, is a strategic tool to boost revenue and document the economy. While it has succeeded in generating funds, e.g., PKR 10 billion from Karachi residents in 10 months post-2023, it remains controversial. Critics argue it risks driving cash into the informal sector, while supporters see it as a necessary step toward tax compliance.
For individuals and businesses, the choice is clear: file taxes to avoid the levy or face higher costs. As Pakistan navigates its economic challenges in 2025, the future of this tax, whether it stays at 0.6%, rises to 0.9%, or evolves further, will depend on balancing revenue goals with financial inclusion. Stay informed and consider consulting a tax professional to navigate these regulations effectively.
