The Federal Board of Revenue (FBR) is planning to reduce withholding tax on cash withdrawal from banks from 0.3 percent to 0.2 percent in the coming budget for 2011-12.
Sources told Business Recorder here on Sunday that the preparation of the Finance Bill for 2011-12 is in the final stages. It is expected that the withholding tax on cash withdrawal from banks would be brought down from 0.3 to 0.2 percent.
It is important to mention that the working group on banking sector reforms of the Economic Advisory Council (EAC) had recommended abolition of 0.3 percent withholding tax on cash withdrawal from banks. In its recommendations submitted before the EAC, the working group on banking sector reforms recommended elimination of 0.3 percent withholding tax on cash transactions.
The Revenue Advisory Council (RAC) had also recommended to budget makers to abolish 0. 3 percent withholding tax on cash withdrawal from banks in the coming budget. The RAC had strongly recommended that the FBR should abolish the cash withdrawal from banks. When the FBR had imposed the cash withdrawal on banks, the levy was imposed to encourage documentation of economy and broadening the tax base. The withholding tax on cash withdrawal @ rate of 0.1 percent was introduced through Finance Act, 2005 which was adjustable against final tax. However, it was not a revenue generation measure. Later, the rate of deduction was enhanced to 0. 2 percent in the year 2006. The rate of withholding tax on cash withdrawal from banks was further enhanced to 0. 3 percent through Finance Act 2008. The FBR has made it a revenue generation measure, which was against the basic policy of introducing the levy. It is expected that the collection of withholding tax on cash withdrawal from banks may reach the figure of Rs 16 billion by the end of June 30, 2011.