The Federal Board of Revenue (FBR) has clarified confusion surrounding a perceived 20.5% tax on cash sales over Rs 2 lakh, following widespread speculation after changes introduced in the Finance Act 2025.
Officials confirmed that no direct tax has been imposed on large cash transactions. However, they explained that the Finance Act has introduced a new clause in the Income Tax Ordinance, 2001.
Under this clause, businesses will face disallowance of 50% of expense claims on any sale exceeding Rs 200,000 if the payment is made in cash or through non-digital, non-banking methods, as per a single invoice.
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The amendment, FBR informed the Senate Standing Committee, is aimed at promoting digital payments and enhancing economic documentation. It forms part of broader efforts to discourage the informal economy and push businesses toward traceable financial systems.
While the move aligns with the government’s goal of improving tax compliance, it has sparked criticism. Some members of the ruling coalition expressed concerns that the measure could hurt small traders and cash-reliant businesses.
Industry analysts have also pointed to challenges in enforcing the rule, especially for individuals and Associations of Persons (AOPs) with turnover below Rs 300 million, who are not required to undergo mandatory audits.