ISLAMABAD: The implementation of new ordinance, restricting the corporate sector to make payments of over Rs250,000 of any expenditure through digital mode, will result in an inevitable collapse of the entire business market system based on credit and post-dated cross cheques, said the tax experts.

Consequently, clause (la) in section 21 has been inserted in the ordinance whereby it is now mandatory for companies to make payments on expenditures exceeding Rs250,000/- through digital mode only. However, expenditures on account of utility bills, freight charges, travel fair, and payment of taxes and fines would continue to be admissible either paid in cash or traditional banking instruments.

It is pertinent to mention that currently grey transactions (hiding/suppressing sales invoices and un-reconciled payments through open/revolving cheque or cash) are highly prevalent in business value chains. Almost 99 percent of all business transactions are on cash/cheque.

Tax experts told Business Recorder that mostly payments are made through crossed cheques or post-dated crossed-cheques for transactions involving supplies on credit in the market.

This new condition enforced from September 15, 2021 would collapse the entire business system. Practically, all businesses in the market work on credit that is secured in the form of post-dated cheques. After this new amendment, every payment above Rs0.25 million of any expenditure would be made through the digital mode. It would collapse the entire system.

They added that an amendment is urgently required to introduce an option for the corporate sector to either make payment through digital mode or cross cheques.

When contacted, a top official of the Federal Board of Revenue (FBR) told that no amendment is under consideration in this regard.

According to the sources FBR is also engaging SBP to issue necessary instructions to operationalise this important provision of law as well as encourage the banking sector to facilitate the corporate businesses to accomplish digitisation within the stipulated timeframe.

Tax lawyer Waheed Shahzad Butt said that the said measure is difficult to be implemented in the absence of definition of the "digital mode" in the Income Tax Ordinance 2001 or income tax rules.

President SHC Bar Association Salahuddin Ahamd said that the Ordinance can be challenged in the court and the court may pass order against it and set it aside. He said that the Ordinance life is four months and if that is not passed by the Parliament then there may be a crisis-like situation.