WHT reduced on foreign payments via debt, credit cards
The federal government has reduced the withholding tax on foreign credit and debit card payments from 5% to 0.5% to promote digital transactions and formalize the economy.
- Reasons for the significant tax reduction.
- Impact on digital payments and economic documentation.
- Banking sector's support for digitalization efforts.
KARACHI: In a major move to promote the digital transitions, the federal government has announced to reduce the withholding tax (WHT) rate from 5 percent to 0.5 percent on foreign payments made through credit or debit cards.
According to 2026-27 budget speech, Finance Minister Muhammad Aurangzeb announced the massive reduction in the withholding tax on credit or debit cards transactions aimed to promote the use of credit and debit cards and encourage the digital payment.
At present, banks are required to collect 5 percent withholding tax on every international transaction made through credit or debit cards.
As a result, the use of informal channels for the transfer of funds has increased as banking customers prefer cash transactions to save the 5 percent tax on the international transactions of credit or debit. To encourage the use of debit or credit cards, the government has decided to reduce this withholding tax rate from 5 percent to 0.5 percent, some 4.5 percent reduction.
The minister said that federal government’s this measure will promote documented financial transactions, improve the economy’s documentation, and strengthen the government’s revenue collection efforts.
Banking sector has also appreciated this move and said that this measure will reduce the cost of international transactions and encourage the customers to pay through debit or credit card while traveling abroad.
They said that this is in the line with State Bank of Pakistan’s vision to digitalise the entire banking system. Currently, the digital transactions continued to drive the volume of financial transactions. The digitalisation provides convenience to customers and enhances the efficiency and delivery of financial services, specifically payment-related.
Currently, digital transactions continue to dominate volume of transactions, OTC transactions still lead in value terms. In order to further promote digital financial services, Digital Retail Bank (DRB) licenses were granted to two banks by the SBP.
Copyright Business Recorder, 2026
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