FBR Denies Imposing Tax on Cash Transactions Above Rs. 200,000

The Federal Board of Revenue (FBR) has categorically denied claims circulating online that a 20.5% tax has been imposed on cash transactions above Rs. 200,000. An FBR Member clarified, “Such reports are incorrect and no such tax has been imposed.”

New Finance Bill Sparks Confusion

This statement comes in response to confusion sparked by a new amendment in the Finance Bill 2025, which states that 50% of any claimed expenditure will be disallowed if payment above Rs. 200,000 is received in cash or by non-banking means under a single invoice.

FBR Chairman Defends the Amendment

FBR Chairman Rashid Mahmood Langrial confirmed that the new provision will remain in place for now. He said the rule was passed by the National Assembly Standing Committee on Finance, not by the FBR. “The government cannot withdraw this law until the next Finance Bill (2026-27),” he added.

Political Opposition and Tax Expert Views

Senator Sherry Rehman of the PPP criticized the amendment, calling it a “draconian law”. Meanwhile, tax expert Ashfaq Tola explained that the new Section 21(s) of the Income Tax Ordinance, 2001, limits business deductions if transactions are made in cash above the threshold.

What the Law Says

The amendment disallows 50% of expenses claimed on any sale where payment exceeds Rs. 200,000 and is not made through banking or digital channels. For instance:

• If a sale of Rs. 199,999 is made in cash, no disallowance applies.
• If a sale of Rs. 200,001 is made in cash, 50% of expenses (like freight, carriage, or commission) related to the sale will be disallowed.

Lack of Clarity Raises Concerns

There is no formula or method to determine how much expenditure is “directly attributable” to such cash sales, creating ambiguity. This could make enforcement difficult and lead to disputes or even potential revenue losses.

Audit Loopholes May Complicate Enforcement

Individuals and small firms (AOPs under Rs. 300 million turnover) are not required to be audited, making it harder for authorities to certify claimed expenditures, and possibly weakening the law’s impact.