Cash withdrawal from banks: increase in WHT likely

The government may increase withholding tax on cash withdrawal from banks from 0.3 to 0.4 or 0.5 percent in the upcoming budget (2011-12). Sources told Business Recorder on Friday that the FBR is examining a budget proposal to enhance the existing rate of withholding tax on cash withdrawal from banks through Finance Act 2011.
During the current budget preparation exercise, the tax authorities are working on the revenue impact of any possible increase in the rate of the withholding tax on cash withdrawal from banks. In case the proposal has been finalised by the tax managers, the same would be forwarded to the Ministry of Finance for considering in the upcoming federal budget (2011-12). This would require amendment in the section 231A read with Division VI of Part IV of the First Schedule of the Income Tax Ordinance 2001.
The withholding tax on cash withdrawal @ rate of 0.1 percent was introduced through Finance Act, 2005 which was adjustable against final tax. Subsequently, the rate of deduction was enhanced to 0.2 percent in the year 2006. This was also adjustable advance tax.
In fact this tax was imposed to encourage documentation of economy and broadening the tax base. It was also an attempt to encourage payment of tax in advance for adjustment against final tax. The rate of withholding tax on cash withdrawal from banks was enhanced to 0.3 percent through Finance Act 2008. Withdrawal which exceeds Rs 25,000 tax is required to be deducted on the whole amount and not the amount exceeding Rs 25,000.