The government’s decision to impose advance tax of 0.6 per cent and 0.3 per cent on all kinds of money transfers through banks by non-tax payers and registered tax payers, respectively, is having a direct impact on the banking business as customers have resorted to tax transactions to save money.
Besides cash withdrawals, these tax rates would also be applicable on demand drafts, pay orders, SDRs, CDRs, STDR, call deposit receipts and RTCs.
“The decision of the federal government is forcing businessmen to undertake cash transactions as we cannot pay 0.6 per cent on every bank transaction,” said Muhammad Ali, an iron merchant, adding that his average daily banking transactions ranged from Rs 700,000 to Rs 800,000 and he was not willing to pay tax on every transaction.
On the other hand, some bankers told Pakistan Today that the government’s decision will affect both their business and deposits. “We are foreseeing a decrease in our deposits due to this advance tax imposition,” said a bank manager, asking not to be named. He said that the tax would also result in a decrease in money transfers through banks.
Earlier, the government charged 0.3 per cent withholding tax from banks on transactions of Rs 50,000 or more, regardless of whether an accountholder is a taxpayer or not.
“This kind of tax will directly hit the small traders and account holders who were using banks only to save money by direct transfers to their account,” the manager said. He said that this was an additional burden on existing taxpayers, especially banks, who are already paying hefty taxes.
In this connection, the Pakistan Banks Association (PBA) has also written to the FBR chairman expressing their concern on the new taxation on banks. They have demanded restoration of the Seventh Schedule (Banking Schedule) of the Income Tax Ordinance in its original form.
The Seventh Schedule was incorporated in the Income Tax Ordinance 2001 vide the Finance Act 2007, on the premise that the banking sector is fully documented and is regulated by the State Bank of Pakistan. Therefore, the banking profits and gains, as disclosed in the audited accounts, should be acceptable to the taxation authorities, barring a few adjustments that would be essential to be made to the audited accounts.
Talking to Pakistan Today, KCCI President Ashraf Vohra said the chamber had also suggested the federal government to make a separate formula to enhance tax net and if it did not do so the deposits of almost all banks would start shrinking in the coming months. He said they had agreed on enhancing the tax net but the chamber rejected this formula of Finance Ministry.