The government has proposed a major reduction in withholding tax on international credit and debit card transactions as part of efforts to promote the use of formal banking channels and improve financial documentation in the economy.
Finance Minister Muhammad Aurangzeb said that under the federal budget 2026–27, the withholding tax on overseas transactions made through bank-issued cards is proposed to be reduced from 5% to 0.5%. This represents a 90% reduction in the current tax rate.
Officials say the main goal of this decision is to make digital and formal banking transactions easier and more affordable for consumers. By lowering the tax on international card payments, the government hopes that more people will use official banking systems instead of informal channels.
The proposal is also aimed at improving the documentation of economic activity in Pakistan. When transactions are carried out through banks and digital payment systems, it becomes easier for authorities to track financial flows and strengthen the overall tax system.
According to officials, the move is expected to benefit individuals who travel abroad or make purchases from international platforms using credit or debit cards. The reduced tax burden may also encourage higher usage of digital payment methods.
Experts believe that encouraging cashless and documented transactions can help improve transparency in the financial system and support long-term economic stability. It may also contribute to better data collection for policy planning and revenue generation.
If approved, the new tax rate will take effect in the 2026–27 fiscal year and will mark a significant shift in how international card-based transactions are taxed in Pakistan. The government sees this step as part of its broader strategy to modernize the financial system and promote digital banking across the country.
