Federal Government Implements New Tax Measures on Bank Transactions

The federal government of Pakistan has introduced a new tax regime, effective from July 1, that affects all types of bank transactions for both tax filers and non-filers. This initiative is part of a broader effort to increase tax revenue and encourage more individuals to become compliant with tax filing requirements. The changes have significant implications for daily banking activities, affecting cash withdrawals, ATM usage, and associated banking fees.

Withholding Tax on Cash Withdrawals

Under the new regulations, individuals who file tax returns, known as filers, will now incur a 0.3 percent withholding tax on daily cash withdrawals exceeding Rs. 50,000. This measure aims to ensure that even those who contribute to the tax pool through filings are participating in the governmental effort to boost revenue. For non-filers, the situation is more stringent, as they will face a doubled rate of 0.6 percent on the same transactions. These deductions are automatically applied to all qualifying cash transactions conducted through bank branches or ATMs, making compliance seamless but mandatory.

Special Deduction for Non-Filers

Non-filers are subject to additional financial penalties under the new regime. A specific deduction of Rs. 522 is imposed on cheque-based cash withdrawals of Rs. 20,000 or more. This measure is designed to further encourage non-filers to enter the formal tax system. By imposing higher rates and additional fees on non-filers, the government aims to incentivize them to file tax returns and contribute to the nation’s fiscal health.

Increased Fees for Banking Services

The revised tax system has also brought about higher fees for various banking services, directly impacting the cost of financial transactions for consumers. The interbank ATM usage fee has nearly doubled, rising from Rs. 18 to Rs. 34 per transaction. Additionally, the fees associated with the issuance or renewal of ATM cards have increased by Rs. 700. Furthermore, the SMS alert service, a tool widely used by customers to track transactions, has seen its fees surge from Rs. 1,200 to Rs. 2,000.

New Limits on ATM Withdrawals

In response to the new tax regime, banks have enforced stricter ATM withdrawal limits, categorizing them based on the type of card held by the customer. Standard debit card holders are now restricted to withdrawing between Rs. 25,000 and Rs. 50,000 per day. In contrast, premium cardholders enjoy a higher limit of up to Rs. 500,000 per day. Foreign debit cardholders face a daily withdrawal limit ranging from 200to200to500, with the equivalent amount being dispensed in Pakistani Rupees. These changes reflect an effort to manage cash flow and transaction costs more effectively.

Additional Fees for International ATM Usage

International ATM transactions are also affected by the new tax regime. Banks will now impose separate fees for using ATMs abroad, either based on prevailing exchange rates or a fixed charge determined by the respective bank. This adjustment seeks to cover the additional costs incurred by banks when processing international transactions, ensuring that customers are aware of the financial implications of using their cards abroad.

Concerns Over Reduced Digital Transactions

The revised financial charges have prompted concerns among banks about the potential decline in digital transactions. Banks have approached 1Link, the country’s primary interbank network service provider, to reconsider the revised charges. The apprehension is that increased fees may deter people from using digital banking services, pushing them back toward cash transactions. However, 1Link has clarified its fee structure, indicating that it passes on the maximum charge of Rs. 28 to acquirer banks while retaining a minimum charge of Rs. 7. This arrangement aims to balance the operational costs while encouraging continued digital transaction use.

These new measures by the federal government mark a significant shift in how banking transactions are taxed and managed, reflecting a strategic move towards increased tax compliance and revenue generation. As consumers and banks adapt to these changes, the long-term impact on financial behavior and digital transaction trends remains to be observed.