20% tax on cash above Rs 2 Lakh in Pakistan? Here’s the full details

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11 July, 2025 13:23

20% tax on cash above Rs 2 Lakh in Pakistan? Here’s the full details

Pakistanis are feeling the pressure of new tax rules, and now there are reports about a 20% tax on cash transactions over Rs. 2 lakh. This has confused and worry among businesses and the public.

The Federal Board of Revenue (FBR) has clarified the situation. They said this is not a direct tax on people but a rule for businesses. If any business gets more than Rs. 2 lakh in cash for a single sale, the FBR will disallow 50% of their related business expenses when calculating their taxable income.

What Does This Mean?

For example, if a shop receives Rs. 2.5 lakh in cash and claims Rs. 30,000 as expenses, only Rs. 15,000 of that will be accepted by the tax department. This makes businesses look more profitable on paper and increases their tax burden.

Cash sales below Rs. 2 lakh are not affected, and the government wants businesses to shift to digital payments like bank transfers to avoid these penalties.

Tax Rules for Cash Transactions

Transaction	Cash Amount	Mode	Tax Rule
Business Sale	Rs. 199,999 or less	Cash	100% expense allowed
Business Sale	Rs. 200,001 or more	Cash (non-digital)	50% of related expense disallowed
Business Sale	Any amount	Bank Transfer/Digital Payment	100% expense allowed

Why Are Businesses Worried?

Many small and medium-sized businesses say these rules are confusing. The tax department hasn’t clearly explained how to decide which expenses are linked to big cash sales. This gives tax officials more control and could lead to unfair treatment.

Other Tax Changes in Budget 2025

The government has also introduced more taxes in the 2025-26 budget:

Dividend Tax: Increased from 25% to 29% for companies receiving dividends from mutual funds.
Withholding Tax: Increased from 15% to 20% on profits from government securities (for institutions).
Climate Support Levy (CSL): A one-time tax on petrol and hybrid cars based on engine size:
- Up to 1300cc – 1% tax
- 1301cc to 1800cc – 2% tax
- Above 1800cc – 3% tax
- Fully electric vehicles (EVs) are exempt.

The government says these steps are to improve tax collection and promote digital payments and cleaner vehicles, but for now, many businesses are struggling to understand and adjust to these changes.