The Federal Board of Revenue (FBR) has introduced a new rule that will disallow 50% of business expenditure in cases where a sale of Rs200,000 or more is made on a single invoice, and payment is not received through banking channels or digital means.
The new measure, which was outlined in an income tax circular issued on Monday, aims to improve tax compliance and reduce reliance on informal transactions.
Under the Finance Act, 2025, a new clause (q) has been added to Section 2L of the Income Tax Ordinance, 2001, specifying that 10% of expenditure related to purchases from unregistered suppliers (those without a National Tax Number or NTN) will be disallowed.
This provision aims to strengthen the formal sector and help it capture more market share from the informal sector, though it will not apply to agricultural produce unless sold through intermediaries.
The circular also clarifies that a 50% disallowance of business expenditure will apply when a sale of Rs200,000 or more is made, and the payment is not received through a bank or digital means. However, if the buyer deposits cash into the seller’s bank account, it will be treated as a payment through banking channels, and the disallowance will not apply.
Additionally, a new clause (s) in Section 21 of the Income Tax Ordinance, 2001, specifies that for capital assets, depreciation expenses will be disallowed if the asset is acquired without withholding taxes under sections 152 or 153 of the Ordinance. Payments made to suppliers for such capital assets without withholding tax will not be included in the cost of the asset for tax depreciation purposes.
