ISLAMABAD (July 06 2005): The Central Board of Revenue (CBR) has announced that cash withdrawals exceeding Rs 25,000 made through credit cards or automated teller machines (ATMs) would be liable to 0.1 percent withholding tax. The decision has been notified through Income Tax Circular No 1 of 2005, issued here on Tuesday.
However, this tax will not be applicable to interbank transactions.
The circular has specified that the tax has been levied to discourage cash economy. A new section 231A has been introduced in the Income Tax Ordinance 2001, requiring every banking company to deduct tax @ 0.1 percent at the time of making payment for cash withdrawals exceeding Rs 25,000.
In this regard, cash withdrawals made through credit cards or ATMs would also be covered.
For example, if cash withdrawal in a single transaction is Rs 60,000, the tax will be deducted as below: Amount exceeding Rs 25,000 (ie 35,000), tax amounting to Rs 35 to be deducted at the rate of 0.1 percent.
The CBR has further explained that the bank account from which withdrawal is made, shall be debited by the amount equivalent to 0.1 percent of the payment at the time a cash withdrawal is made. However, in case an account is being closed through a clearing transaction or there being no balance in the account on encashment of a cheque, the bank shall make the deduction of tax from the amount being withdrawn and the balance after deduction shall be paid to the person making the withdrawal.
The withholding tax on cash withdrawal is adjustable against the final tax liability determined in tax assessment. It is also provided that tax shall not be deducted in the case of withdrawals made by the federal government or a provincial government; a foreign diplomat or a diplomatic mission in Pakistan; or a person who produces a certificate from the Commissioner that his income during the tax year is exempt.
This provision which comes into force from July 1, 2005, shall not be applicable to interbank transactions and foreign currency accounts.