Introduction: The Myth of the General Cash Tax
The Advance Tax on Cash Withdrawal often confuses taxpayers in Pakistan, with many believing it applies to everyone. However, a strict reading of the Income Tax Ordinance, 2001 (ITO, 2001) and subsequent FBR Rate Cards confirms a crucial fact: Section 231AB is a penalty mechanism aimed exclusively at Non-Filers.
If you are an Active Taxpayer (Filer), you are legally exempt from the collection of this advance tax. If you are a Non-Filer, the financial consequence of this section is severe.
The Legal Anchor: Section 231AB and the Tenth Schedule
The law granting authority to the banks to deduct this tax is Section 231AB of the ITO, 2001.
1. The Scope of Deduction (The Critical Clause)
Section 231AB states that every banking company is required to collect advance tax at the time of making payment for cash withdrawals by a person whose name is not appearing in the Active Taxpayers’ List (ATL).
- Verifiable Fact: The law is not aimed at generating general revenue; it is aimed at tax base enforcement. The language explicitly excludes ATL members from its application.
2. The Crippling Rate for Non-Filers
The advance tax rate is applied when the aggregate of cash withdrawals in a single day exceeds PKR 50,000. The rate structure is governed by Division VII of Part-IV of the First Schedule and the penalty rules found in the Tenth Schedule.
- Current Penalty Rate: The rate for a Non-Filer is a punitive 0.8% of the withdrawn amount.
- Legal Source of the Penalty: This rate is the result of the Tenth Schedule rule which mandates that the rate of tax for a Non-Filer is significantly higher (often doubled) than the standard rate. In this case, the 0.8% rate is applied directly to Non-ATL persons to enforce compliance.
🛑 How the 0.8% Penalty Impacts Your Business
For a business owner who makes regular cash withdrawals, the 0.8% rate can be a significant drain on cash flow:
| Daily Cash Withdrawal | Advance Tax Deducted (@ 0.8%) | Annual Cost (250 Days) |
| PKR 100,000 | PKR 800 | PKR 200,000 |
| PKR 300,000 | PKR 2,400 | PKR 600,000 |
