Islamabad, July 10, 2025: The Federal Board of Revenue (FBR) has officially denied imposing any 20.5% tax on cash transactions exceeding Rs. 200,000, calling such reports misleading. FBR Member clarified that no such tax exists and the public should not fall for false claims.
What has changed, however, is an amendment in the Finance Act 2025, which aims to discourage undocumented cash dealings. As per the new Section 21(s) of the Income Tax Ordinance, 50% of any business expenditure will be disallowed if a single invoice exceeds Rs. 200,000 and is paid in cash or any non-banking method.
What the FBR Actually Did
FBR Chairman Rashid Mahmood Langrial told the Senate Finance Committee that the new law is not reversible, as it has been approved by the National Assembly. Only the next Finance Bill (2026-27) can amend it.
He further clarified that this law is about documentation, not taxation. It is meant to shift businesses toward banking channels or digital payments, ensuring transparency in high-value transactions.
Disallowed Expenditure: How It Works
The new rule affects businesses receiving payments above Rs. 200,000 per invoice in cash. In such cases, 50% of related expenses like freight, commission, and carriage will not be allowed as deductions for tax purposes.
Example:
- Below Rs. 200,000 (No Disallowance): Payment of Rs. 199,999 in cash – expenses are fully deductible.
- Above Rs. 200,000 (Disallowance Applies): Payment of Rs. 200,001 in cash – 50% of related expenses are disallowed.
If Rs. 30,000 is claimed as expense, Rs. 15,000 will be rejected under the new rule.
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Legal Grey Areas Remain
Experts argue the law does not specify a method to calculate “directly attributable” expenses. This vagueness could allow manipulation and reduce the law’s effectiveness. Taxpayers may underreport affected expenses to avoid disallowance, possibly leading to revenue leakage.
Moreover, individuals and small AOPs (turnover below Rs. 300 million) are not legally required to get audits, making it harder to verify and certify actual expenses.
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Senator Sherry Rehman of the PPP strongly opposed the move, calling it a “draconian law.” However, the FBR insists the aim is transparency, not punishment.
