The Federal Board of Revenue (FBR) has officially denied imposing a 20.5% tax on cash transactions exceeding Rs200,000. Instead, under the Finance Act 2025, a new provision limits the deductibility of business expenses related to such high-value cash dealings. Businesses will only be allowed to claim 50% of associated costs, such as freight or commissions, for these transactions.

This change is designed to encourage digital and banking transactions by making cash dealings less tax-efficient. It applies exclusively to business-to-business cash payments above the threshold and does not affect other income sources like salaries, property, capital gains, or agricultural sales. Payments to both filers and non-filers over Rs200,000 in cash will trigger the expense disallowance.

FBR officials emphasize that this is a documentation and transparency measure, not an additional tax. Any revisions to this clause would need to be introduced through the next fiscal year’s Finance Bill.

Businesses are urged to transition to formal payment channels to maintain full expense eligibility and avoid unexpected tax burdens.