The government has announced a significant reduction in withholding tax on international debit and credit card transactions, cutting the rate from 5 percent to just 0.5 percent in the federal budget FY2026–27. The move is part of broader tax reforms aimed at reducing the cost of digital and cross-border financial transactions for consumers and businesses.
According to officials, the revised policy applies to all payments made abroad using bank-issued debit and credit cards. Banks and financial institutions will now collect a much lower withholding tax at the time of transaction, which is expected to directly reduce overall costs for users engaged in international shopping, travel bookings, subscriptions, and other foreign payments.
The Federal Board of Revenue (FBR) stated that the adjustment has been introduced to simplify tax compliance and encourage the use of formal banking channels. By lowering transaction costs, authorities hope to discourage cash-based or informal payment methods and promote a more transparent financial system.
Government representatives added that the decision is also intended to support the growth of digital payments in Pakistan and improve the ease of doing business, particularly for freelancers, e-commerce users, and companies involved in global trade and services.
Officials further explained that the measure is part of a wider strategy to expand the tax base while providing targeted relief to consumers who rely on international transactions in an increasingly connected global economy.
The new withholding tax rate is expected to take effect from the beginning of the next fiscal year, subject to final legislative approval. Once implemented, it is likely to significantly reduce costs for frequent international card users and encourage greater participation in the formal banking sector.
