ISLAMABAD: Several reports about 20.5% tax on cash sales of more than Rs 2 lakh were shared online, but FBR officials cleared the matter after changes in the Finance Act 2025 tightened the noose around businesses transacting in cash.
Amid viral buzz and conflicting reports, officials clarified that while no direct tax has been levied on high-value cash transactions, the said Finance Act 2025 has added a new provision to the Income Tax Ordinance, 2001, restricting deductions for expenses related to such transactions.
According to the new legislation, 50% of expenses claimed against any sale will be disallowed if the payment is more than Rs 2 lakh and is made in cash or through non-digital, non-banking channels, on the basis of an invoice.
The FBR chief told members of the Senate Standing Committee that the legislation aims to promote digital and banking transactions and improve documentation within the economy.
Some members of the ruling coalition have lamented the move to dent businesses and traders who operate largely in cash. Industry experts have also expressed concerns over the practical implementation of the amendment.
Many individuals and small associations of individuals (AOPs) are not subject to mandatory audits if their turnover remains below Rs. 300 million. This raises concerns about implementation and verification, making the policy difficult to monitor and potentially ineffective in raising tax revenue.
