Only Digital Payments allowed to Companies Payments
Only Digital Payments allowed to Companies Payments via Section 21(L): Cash payments have always been discouraged by tax department and it has been a hallmark of our tax laws that there has been defined a maximum cap of not more than 250,000/- in a year under one Head of Account up to which cash expense would be allowed.
Any excess therefrom will fall short of being qualified as a tax expense.
It was, however, never expected that companies would be barred from making payment in crossed cheques as well and that they will be asked to make their payments singularly through Digital Means to qualify for tax expense.
It has been provided for under the Amendment Ordinance that companies are restricted to incur expenses only through digital means from business bank account on transaction exceeding the above threshold to claim it as a tax expense.
More interesting to note remains the fact that they have missed to provide the definition of ‘Digital Means”.
We understand that the proposed amendment cannot be enforced without clarity as on one hand the definition of “digital means” has not been provided under the Ordinance and on the other hand the practical side of implementation of the above clause has also not been well thought off as it effectively means that transaction made by the company not only through cheques but through Demand Draft, Pay Order
or Telegraphic transfer would not be allowed as tax expense.
For more information on FBR’s new regulations / circulars/ SROs/ amendments in taxation laws in Pakistan please visit https://www.fbr.gov.pk/