According to sources, if the premier approves the proposal, it will be one of the biggest revenue spinners for next fiscal year 2014-15, beginning July. CREATIVE COMMONS
The federal government seems to be relying on traditional methods of enhancing revenues and is likely to increase the tax rate on withdrawal of cash from banks by 66% to 0.5% of the amount for persons who do not file income tax returns.
Sources in the Ministry of Finance said the proposal was cleared by Finance Minister Ishaq Dar on Wednesday evening. The Federal Board of Revenue (FBR) had proposed an increase of 100% to 0.6%, but Dar was in favour of 0.5%.
The proposal could be part of tax measures that economic managers will present to Prime Minister Nawaz Sharif for approval before presenting them to parliament.
According to sources, if the premier approves the proposal, it will be one of the biggest revenue spinners for next fiscal year 2014-15, beginning July. The FBR aims to collect roughly 3% of total income tax next year by increasing the levy on cash withdrawal.
They added there was a possibility that the government would issue a notification for implementation of the proposal from June 3, the day it presents the budget.
At present, the government charges 0.3% withholding tax on drawing Rs50,000 or more from banks, irrespective of whether an account holder is a taxpayer or not.
However, the taxpayer has the right to claim refund once he files income tax return. But it is very rare that people claim the refund.
According to sources, people who file their income tax return will still be paying 0.3% withholding tax, underscoring that the government wants to use it as a revenue spinner and does not seem to be in a mood to withdraw the levy from those who are tax-compliant.
While presenting its first budget in June last year, the PML-N government had increased the rate from 0.2% to 0.3%. At the rate of 0.2%, the FBR had received Rs12.5 billion in fiscal year 2012-13. After increasing it to 0.3%, it collected Rs4 billion in the first quarter (July-September) of the current fiscal year, an increase of 60% over the same period of previous year.
Sources said a mechanism to make a distinction between tax-compliant and non-compliant customers would have to be worked out by the FBR and banks. There is a possibility that banks will be provided a list of compliant taxpayers.
The exact estimate of tax collection under this head is difficult to make but the FBR expects to receive Rs25 to Rs30 billion in the next fiscal year.
Like its predecessor, the PML-N government is struggling to find out-of-box solutions and is relying on traditional methods of widening the tax base.
For the next fiscal year, it is going to give an over-ambitious tax target of Rs2.810 trillion to the FBR that the tax machinery insists is very steep, requiring 23.5% growth over the current year’s anticipated collection.
Sources pointed out that in order to achieve the target the government would have to rely on conventional means.
In last year’s budget, the government passed a law, getting permission to access individual bank accounts. However, it retreated after the business community, particularly from Punjab, strongly protested against the move.
Later, it amended rules and limited access to only those accounts that were owned by people not registered with the FBR. This move also backfired and a provincial court granted a stay order.
Sources said the finance minister was of the view that the people who did not file income tax returns despite numerous extensions would have to pay the price in the next fiscal year.
Published in The Express Tribune, May 23rd, 2014.
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COMMENTS (19)
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No economy or sub economies can be documented fully. It is futile exercise. What we really need to account is what the bureaucracy doing with the money from taxation in public interest. We need to document how much money is being spent on public interest rather than eaten away in Islamabad. The Pakistani Citizen taken on with increase taxation at whim of Federal government. This going to cause serious damage to banking and money in circulation. There is something very wrong in finance ministry, just perhaps incompetency cannot be ruled out.
Another dumb move. Instead on levying tax on Stocks market, Real estate mafia and the Fuedals, the govt continues its policies taxing the common man.
@John B: You should be working in place of Ishaq Dar.
Good move, ppl who file income tax should not worry as they will get claim. Only non filers start worring
@vicky shah: You simple minded sincerity and patriotism is appreciated, but the Govt is trying to save a sinking ship by plugging big holes with small sticks. Such measures (indirect taxes) will earn Rs 15 - 20 billion, but the huge budget deficit will not be resolved unless tax base is increased. Consider that interest cost of Pakistan loans next year will more than Rs 1,000 billion. Now think how many indirect taxes will be needed to earn that much? Passing on Govt inefficiency to existing tax payers is unfair. When a ship goes down, the captain should go down with it, but in our case the captain will flee to foreign lands and we will be left to sink on our own.
@ vicky shah..................i am ready to give Rs.1000 provided this money used for providing basic need of people not o buy BMW...http://www.dawn.com/news/1107879/pm-gets-two-bmws-amid-austerity-claims
@vicky shah: emmmm?? When you are writing your views is it really necessary to write emmm?? Not everyone is tax filing savvy. This will penalize the less savvy tax filers. Why doesn't the govt/fbr just raid high profile companies and audit their accounts? Penalize them for tax evasion and make an example out of them. The threat of being caught will make people pay. Simple.
@vicky shah: The tax is actually on the amount above Rs. 50k. So if you withdrew 55k you would be charged tax on 5k. If you withdrew exactly 50k there would be no tax.
@vicky shah: You have completely missed the point. Very briefly, the government is trying to squeeze more from common people who are already buried under inflation rather than controlling their lavish spendings. The clowns sitting at the top are busy buying bullet proof cars from your deposits in the national treasury!
Govt. thinks this is out-of-box ..!! No, this is pure ridiculous.
Mr John & Mr Moeed em story to say that em not agree with you nor even ready to suppose it farce! If i withdraw 50 thousands from bank then i don't see any harm in paying just 300 rupees (0.6%) to my national treasury of Pakistan! 300 rupees really not matter for me, but it matters lot for my country and boost its reserve to enhance development! Man we are paying to our State not to any NathoKhaira! If this country help u to earn 50K then y r thinking to return something to him for the betterment of others? Its a great saying "don't think what ur country can do for u, think what u can do for ur country"
Stuip Move: Our Government is trying to create an undocumented economy. People will not deposit cash in bank and direct cash payments in markets will be encouraged.Cash supply in banks will be shortned where as SBP will have no actual data for printing of currency notes. This will lead to inflation. If a common man like me understands the same, then why not our Finance Ministry.
"According to sources, people who file their income tax return will still be paying 0.3% withholding tax, underscoring that the government wants to use it as a revenue spinner and does not seem to be in a mood to withdraw the levy from those who are tax-compliant."
Thanks PML-N govt again for discouraging and penalizing the honest tax payers
They can do nothing. Not a single tax evader has been jailed in our history and they believe people will pay taxes with a non existent saza and jaza system of Pakistan? Like all other institutions FBR is deeply politicised and they are not allowed to catch any tax evader without government approval, something government never gives them.
Basically, tax the lower and middle class, leave the upper class untouched. Absolutely shameful.
this is ridiculous how can they take tax from withdrawing money the business will suffer heavily as people will not be willing to pay cash which will slow down the transactions to aviod paying 0.5% withdrawing tax.
Bad move and here are the reasons:
People will stop depositing money in the bank and bank will have limited cash for credit circulation This will eventually cause cash shortage, and government will have no account of how many notes are in circulation and where and with whom. To ease the cash shortage government will eventually print money on guess work of notes in circulation creating inflation. The increase in tax to withdraw ones own money entrusted to the bank is unethical and government has no legal right to say how and where One should deposit ones own money. If one keeps the money under mattress he or she will save 0.6%. It is his or her money so they can keep where they want. What is so special about bank that penalizes one for withdrawing his or her own money? This is a root cause of black money and a way out for storing black money. The increase in bank rate tells that the government is desperate for cash revenue. If I were a Pakistani I would bury my money and save 0.6% or lend it on the street money market to make it grow. Stream line the tax revenue collection rather than penalizing the savers. Credit circulation through banks is vital for money circulation and accounting. This approach is a desperate measure for tax revenue with unintended consequences.