Cash transactions in Pakistan capped at PKR 200,000 for retail and e-commerce COD payments

In a fresh push to promote digital payments and limit the use of cash in high-value retail transactions, Pakistan's Federal Board of Revenue (FBR) has announced that all cash-based payments at retail outlets and cash-on-delivery (COD) transactions in e-commerce will be subject to a maximum limit of PKR 200,000.

The announcement was made via Circular No. 02 of 2025-26 (Income Tax), issued on August 12, which reiterates the provision under Section 21(s) of the Income Tax Ordinance, 2001. The circular clarifies that the transaction limit applied to physical retail outlets now equally applies to e-commerce COD payments as well.

FBR stated that this step is part of the government’s broader strategy to promote a cashless economy, improve transparency in financial transactions, and curb tax evasion.

“This move reinforces our commitment to digitize payment systems and reduce dependency on cash, which remains a key enabler of the undocumented economy,” said an analyst.

Pakistan has been gradually shifting toward a digital payments ecosystem over the last few years, with various policy measures focused on expanding formal financial access, especially for retail and small businesses. This latest regulation aligns with that broader trajectory.

While cash remains the dominant mode of transaction in many parts of the economy, the rise of e-commerce and mobile banking has opened avenues for the government to introduce regulatory reforms that promote formalization and traceability of business activity.

Section 21(s) of the Income Tax Ordinance disallows business expense deductions for cash payments exceeding the prescribed limit. By reinforcing this provision across e-commerce and traditional retail, the government aims to bring uniformity in tax treatment and tighten enforcement.

A nudge in the right direction

A tax expert welcomed the move, calling it “a step toward levelling the playing field between brick-and-mortar and online retailers”.
“By setting a consistent cash transaction limit across sectors, the government is clearly signaling its intent to formalize economic activity. This could also help reduce leakages in tax collection, particularly from high-volume, low-margin businesses that often operate outside the documented economy,” he said.

However, he added that effective implementation would depend on coordination with e-commerce platforms, logistics firms, and financial institutions, particularly in onboarding small sellers and customers onto digital payment systems.