ISLAMABAD: Pakistan’s Council of Islamic Ideology (CII) on Wednesday declared that withholding tax on cash transfers and withdrawals is an “excess” and therefore “un-Islamic,” a ruling that could complicate the government’s efforts to broaden its tax base under IMF-backed fiscal reforms.
Withholding tax (WHT) is an advance levy deducted during specified economic activities under Pakistan’s Income Tax Ordinance, 2001, and the Sales Tax Act, 1990. In practice, banks automatically deduct WHT from customers at the point of withdrawals or transfers, and deposit the funds with the state.
“The council declared the withholding tax imposed on cash withdrawal or transfer to be an excess and therefore un-Islamic,” the body said in a press release following a meeting chaired by Dr. Muhammad Raghib Hussain Naeemi.
The CII is a constitutional advisory body that advises the government and parliament on whether laws conform with Islamic injunctions. Its rulings are non-binding, but they frequently influence public discourse and policy debates.
Economists and fiscal analysts warn the ruling underscores a deeper tension: between religious adjudication and structural reforms demanded by international lenders such as the IMF.
Pakistan is currently under a $7 billion IMF bailout program, approved in September 2024, which requires tough steps to raise the country’s chronically low tax-to-GDP ratio, restructure the energy sector, and strengthen governance.
Among the key conditions are expanding tax collection through indirect and withholding levies, institutionalizing budget approvals, and broadening agricultural income taxation. Rolling back or weakening withholding taxes, analysts say, could undercut documentation of the cash economy and make it harder to fund health, education and infrastructure without new borrowing.
Other matters discussed in the CII meeting included the permissibility of using insulin containing pig-derived ingredients for diabetic patients. The council said such insulin should be avoided if halal alternatives exist.
It also agreed to a request from the ministry of religious affairs to prepare a mobile ringtone that instructs citizens to respect sacred inscriptions on banners and flags during the Islamic month of Rabi Al-Awwal.
