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Business Recorder
10-07-2025
- Business
- Business Recorder
Finance Act 2025 tightens tax rules for businesses, filers
LAHORE: The Finance Act 2025 has brought significant amendments to the Income Tax Ordinance, 2001, impacting businesses and taxpayers. However, the Federal Board of Revenue has incorporated these changes with an aim to broaden the tax base, increase revenue generation, and promote transparency in the tax system. Key amendments included disallowance of business expenditure, purchases from non-NTN holders and tax on cash withdrawals. A new clause has been inserted in Section 21 of the Income Tax Ordinance, disallowing 50% of claimed expenditure related to sales exceeding Rs 200,000, where payment is received in cash or through non-banking channels. This may apply to expenses like freight, carriage, and commission. Similarly, 10% of claimed expenditure attributable to purchases from non-NTN holders will be disallowed, except for purchases of agricultural produce directly from growers. The FBR can exempt certain persons or classes from this clause. So far as tax on cash withdrawals is concerned, the withholding tax rate on cash withdrawals by non-ATL persons has been increased from 0.6% to 0.8%, aiming to encourage a broader tax base. While mentioning implications of these changes in the Ordinance, tax expert Ashfaq Yusuf Tola said it would lead to ambiguity in expenditure calculation, difficulty in identifying middlemen and increased cost for non-filers. He said the lack of a prescribed method to determine expenditure directly attributable to sales may lead to disputes and potential revenue loss. There is a risk that the FBR may misconstrue purchases as business expenditure for the purposes of this provision. Such an interpretation would be legally flawed, as purchases form part of the cost of sales rather than deductible business expenditure under Section 21. Any such misapplication could result in arbitrary disallowances and unwarranted tax exposure for taxpayers. Also, he said, accurately identifying and verifying middlemen in agricultural produce purchases might be challenging for the FBR. Furthermore, Tola added, the increased withholding tax rate may discourage non-filers from using banking channels, potentially undermining economic documentation goals. He said the increased withholding tax rate on cash withdrawals by non-filers from 0.6% to 0.8%, raises the cost of remaining outside the tax net. This amendment may be contradictory to the aim of documentation of the economy as it may discourage use of banking channels altogether, as non-filers may deal in cash to avoid the tax, thereby undermining the goal of economic documentation. Copyright Business Recorder, 2025
Business Recorder
08-07-2025
- Business
- Business Recorder
Businesses struggle with new tax rule on high-value cash sales
ISLAMABAD: The business community is facing practical issues while complying with a new income tax provision for disallowing 50 percent of expenditure attributable to cash sales exceeding Rs200,000 per transaction. This new provision introduced through Finance Act 2025 has been implemented from July 1, 2025. Tax experts told Business Recorder that the amendment to Section 24 of the Income Tax Ordinance 2001, which prohibits the deduction of expenses for cash sales exceeding Rs200,000 has generated considerable concern within the business community. Non-filers: Banks to restrict cash withdrawals above set limit In response, numerous companies are distributing circulars advising their customers to avoid cash payments or cash deposits into their bank accounts in compliance with this amendment. Non-filers: Banks to restrict cash withdrawals above set limit According to the details, the disallowance introduced via Section 24 of the Income Tax Ordinance, 2001 pertains exclusively to the head 'Income from Business', as defined under Section 18. This provision disallows 50 per cent of expenditure attributable to cash sales exceeding Rs200,000 per transaction. By legislative design and placement, this disallowance has no bearing on other income heads such as Rental income (Section 15 Income from Property) and Capital Gains (Section 37) and Income from Other Sources (Section 39). Hence, the restriction applies solely to business income and is not applicable to individuals or entities earning income under any other head. Similarly, Section 21 disallows 10 per cent of admissible business expenditure if paid to non-NTN holders. This provision also resides within the framework of 'Income from Business' and does not extend to non-business income. The disallowance under Section 21 does not affect deductions claimed under: Section 15 (Property Income); Section 12 (Salary); Sections 37 / 37A (Capital Gains) and Section 39 (Other Sources). Both disallowance provisions—Section 24 (cash sales) and Section 21 (non-NTN payments)—are categorically limited to income assessed under the head 'Income from Business'. They have no application to rental income, capital gains, salary, or other non-business income streams. Absent any statutory deeming provision to the contrary, their scope remains confined to business taxpayers only, tax experts added. Copyright Business Recorder, 2025
