In a move aimed at promoting the documentation of the economy through formal financial channels, the government on Friday proposed a 90 per cent reduction in withholding tax on international credit and debit card transactions in the federal budget for the next fiscal year, lowering the rate from 5% to 0.5%.

Presenting the federal budget for fiscal year 2026-27, Finance Minister Muhammad Aurangzeb announced the proposed cut, which would reduce the withholding tax rate on overseas transactions made through bank-issued credit and debit cards from 5% to 0.5%.

“Currently, a 5% withholding tax is levied on every transaction made abroad using credit or debit cards issued by banks in Pakistan,” Aurangzeb said while presenting the budget.

Read: Finance Minister Aurangzeb presents Budget 2026-27

He said the existing tax had encouraged the use of informal channels for transferring funds.

To discourage such practices, the minister said, the government had proposed reducing the withholding tax rate to 0.5pc, bringing it in line with the level of a routine financial transaction.

“This measure is expected to support the government’s efforts to promote the documentation of the economy and strengthen formal financial channels,” he said.

If approved, the proposal would result in a 90pc reduction in the withholding tax on international card transactions, providing significant relief to online consumers.