The Federal Board of Revenue (FBR) has officially denied reports of a 20.5% tax on cash sales exceeding Rs. 200,000, calling such claims misleading and incorrect.
The clarification comes in light of public confusion following a new amendment in the Finance Act 2025, which disallows 50% of claimed business expenditure on any single invoice where payment over Rs. 200,000 is received in cash or through any non-banking channel.
✅ No new tax, just a documentation measure
According to FBR officials, no new tax has been introduced. Instead, this is a documentation measure under the income tax law aimed at encouraging digital and bank-based transactions. The measure affects only the deductibility of business expenses, not the imposition of an outright tax.
FBR Chairman Rashid Mahmood Langrial told the Senate Standing Committee on Finance that the new clause in Section 21(s) of the Income Tax Ordinance, 2001 has already been passed by Parliament and can only be revisited in the next Finance Bill (2026-27).
🔍 What does the amendment actually say?
As per the Finance Act 2025, if a taxpayer receives over Rs. 200,000 in cash (or via any method other than a bank or digital means) against a single invoice, then 50% of the related business expenditure (such as freight, commission, or distribution costs) will be disallowed for tax deduction purposes.
Examples:
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✅ No disallowance: A sale of Rs. 199,999 in cash → 100% expense deductible.
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❌ Disallowance applies: A sale of Rs. 200,001 in cash → 50% of the related expense not deductible.
However, there’s no clear method in the law to calculate what portion of the expense is directly attributable to such cash-based sales, leading to ambiguity and compliance challenges.
⚠️ Expert concerns
Tax expert Ashfaq Tola warned that the lack of clarity could allow businesses to underreport directly attributable expenses, undermining the amendment’s intent. He also flagged difficulties for small businesses and AOPs (Association of Persons) that aren’t required to get audited, making enforcement even more complex.
🗣️ Political opposition
Senator Sherry Rehman of the PPP criticized the amendment, calling it a “draconian” measure that could hurt businesses already under pressure.
