Reduced Tax Rate Aims to Encourage Banking Transactions
ISLAMABAD: The federal government has announced a significant reduction in the withholding tax imposed on bank-issued debit card transactions as part of its Budget 2026-27 measures aimed at promoting digital payments and improving economic documentation.
Finance Minister Muhammad Aurangzeb unveiled the proposal during his budget speech, stating that the current tax structure has unintentionally encouraged cash-based transactions and other informal payment methods, reducing transparency in the financial system.
Under the existing framework, a uniform withholding tax of 5 percent is charged on debit card transactions. However, the government has now proposed reducing the rate to 0.5 percent, providing substantial relief to banking customers and encouraging greater use of formal financial channels.
Officials believe the move will help increase the volume of digital transactions while strengthening confidence in electronic payment systems across the country.
Authorities Seek Greater Financial Transparency
According to the finance minister, the reduction is part of broader efforts to discourage undocumented economic activity and bring more transactions into the formal banking sector.
The government maintains that lowering the tax burden on debit card users will make digital payments more attractive and reduce reliance on cash, which often remains difficult to track and document.
Experts note that expanding the use of banking channels can improve transparency, support tax compliance, and enhance monitoring of financial flows throughout the economy.
Part of Wider Economic Reform Measures
The tax reduction forms part of a broader package of fiscal and economic reforms announced in the federal budget. The government has also introduced several measures aimed at stimulating economic activity, broadening the tax base, and supporting growth through increased digitisation.
Officials said encouraging electronic transactions remains a key objective of economic policy, particularly as Pakistan seeks to modernise its financial infrastructure and expand financial inclusion.
The latest proposal is expected to benefit consumers, businesses, and financial institutions by making digital transactions more affordable while supporting the government’s goal of building a more transparent, documented, and technology-driven economy.
