Islamabad, July 12, 2025, 05:17 PM PKT — Section 21(s) of the Income Tax Ordinance, 2001, introduced via the Finance Act 2025 and effective July 1, 2025, is facing fierce resistance just eleven days in, as the Federal Board of Revenue (FBR)’s lack of operational guidelines sparks alarm among tax practitioners, businesses, and policy experts. Aimed at disallowing 50% of expenditures on sales exceeding Rs200,000 paid in cash or non-banking channels per invoice to promote documentation and expand the tax base, the provision is plagued by ambiguity, threatening to undermine its intent, per government claims.
Tax experts decry the absence of an implementation framework, noting no formula to link specific expenses to cash transactions above Rs200,000, risking speculative enforcement and manipulation—e.g., a Rs199,999 cash sale allows full deductions, but a Rs200,001 sale triggers a 50% disallowance, inviting litigation. Rehan Jafferi, ex-Karachi Tax Bar Association president, warns it penalizes compliant SMEs with limited banking access, while cash-heavy informal sectors evade impact, calling it undue harassment due to weak verification systems. Audit gaps for turnovers under Rs300 million further hamper enforcement, as non-mandatory audits obscure expense attribution.
Experts fear a backlash, predicting businesses may split invoices or underreport to dodge the threshold, contradicting documentation goals in a low-trust environment. They advocate pilot phases, clear SOPs, digital tracking (e.g., e-invoicing), and incentives like lower tax rates over blunt disallowances. Web context confirms implementation delays (e.g., FBR guideline absence), while posts found on X reflect frustration—some see flawed design, others demand clarity. Critically, the narrative of “tax base expansion” may mask policy missteps—web data hints at enforcement gaps, and X sentiment suggests distrust in FBR competence, pointing to potential failure.
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