The Federal Board of Revenue (FBR) is examining a budget proposal to increase withholding tax on cash withdrawal from banks from fiscal year 2008-09.
Sources told Business Recorder on Sunday that FBR Chairman Abdulah Yusuf has directed the commissioners of income tax to submit, by May 15, 2008, budget proposals for revision of rate or threshold on withholding tax deduction on cash withdrawal from banks.
Recently, the FBR Chairman informed the FBR Direct Taxes Wing that the levy of CVT on cash withdrawal from banks was more of a tax broadening measure than a revenue generating sources and it was aimed at documentation. "Still we can consider revision of rates or threshold under section 321A of the Income Tax Ordinance 2001," tax authorities added.
Sources said that the withholding tax @ 0.1 percent was levied in 2005 on cash withdrawals from the banks exceeding Rs 25,000. The rate of withholding tax was enhanced from 0.1 percent to 0.2 percent of the amount withdrawn in 2006-07. The limit of Rs 25,000 per transaction was also changed to ''''per day'''' basis.
Now, if the FBR is considering to revise the rate, or threshold, there is possibility that the board might continue the same policy of increasing 0.1 percent in view of the past trend. Previously, the rate was increased from 0.1 percent to 0.2 percent in 2006-07. If the FBR continues with the same policy, the rate might be increased to 0.3 or 0.4 percent on cash withdrawal from banks in the next budget.
The FBR collected Rs 2.5 billion from cash withdrawal from banks during July-December 2007-08 against Rs 2.2 billion in the same period of last fiscal year, showing an increase of 15 percent. This increase in deductions on cash withdrawals vindicates the assertion that the undocumented economy requires special tax treatment.
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