FBR enforces strict cash transaction limits to clamp down on tax evasion

July 07, 2025 (MLN): The Federal Board of Revenue (FBR) has notified businesses, including importers, suppliers, and manufacturers, of tightened restrictions under Section 21 of the Income Tax Ordinance for FY26, aimed at discouraging excessive cash dealings and broadening the tax net.

Under the directive, any cash transaction exceeding PKR 200,000 will not be treated as an allowable business expense. Consequently:

• Only 50% of such expenditure will be recognized for tax purposes.
  
• The disallowed portion will attract an additional tax burden, effectively raising the cost by 20.5%.
  
• For completely disallowed transactions, the effective impact could surge to 79.5%.

Businesses are urged to ensure all supplier and client payments are processed through proper banking channels to avoid heavy penalties and additional scrutiny by FBR.

Stakeholders have been cautioned that failure to comply may lead to significant financial losses and audit complications.

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