Business

Traders start preferring cash transactions, informal channels

Hundi and Hawala used as alternatives to bank dealings to avoid WHT

Imran Rana August 15, 2015

A retailer said the wholesalers now demand cash and refuse to accept cheques. PHOTO: FILE

FAISALABAD: The defiant business community has found a way to avoid the 0.3% withholding tax (WHT) on banking transactions carried out by those who have not filed their income tax returns.

The business community has started doing business either in cash or through some informal means.

Many wealthy executives have hired security guards to protect millions of rupees in cash that changes hands on a daily basis in Faisalabad, the country’s industrial hub. They transfer cash from one place to another like bank’s cash-carrying vehicles, according to sources in business circles.

In the budget for 2015-16, the federal government imposed 0.6% WHT on all banking transactions above Rs50,000 for those who haven’t filed their income tax returns. After a strong protest by the businessmen, the government reduced the rate to 0.3% till September 30, urging the non-filers to come into the tax net to avoid the levy.

Read: Withholding tax: Traders to go on strike

But the businessmen are not content, even with the reduced 0.3% WHT, and have already staged shutter-down strikes in protest early this month.

They have begun to avoid dealing with banks. The State Bank of Pakistan, however, has recently stated that it did not find any reduction in the deposit base of commercial banks in July.

Most of the traders are beginning to prefer cash transactions or making use of informal channels such as Hundi or Hawala to transfer money from one city to another.

Faisalabad is the major hub of trading which, either directly or indirectly, is intricately connected to the rest of Pakistan. Before the imposition of WHT, the traders were doing business on credit basis by providing post-dated cheques. But with the imposition of WHT, the wholesalers along with small and medium level manufacturers are refusing to accept post-dated cheques or online transactions to avoid the 0.3% levy.

The Hundi or Hawala system is the business of mutual trust that does not involve any record of the transaction. People running this system charge nominal sums to compete with banks, said sources.

Within Faisalabad, the business deals are gradually shifting to cash while inter-city transactions are carried out through Hawala.

The bank branches that were dealing with yarn market traders have witnessed a reduction in business-related transactions, said a bank official on condition of anonymity.

Read: The withholding tax saga

The bank official said most of the businessmen have withdrawn their cash from banks. The amount of online transfers, pay orders and other services also fell after the imposition of WHT, he added.

A retailer said the wholesalers now demand cash and refuse to accept cheques, adding those wholesalers who still deal with banks receive money equivalent to 0.3% from the retailers.

Published in The Express Tribune, August 15^th, 2015.

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COMMENTS (4)

Taimur Ali | 8 years ago | Reply @ Asad Rizvi, agree with some of your points, but the financial misery of the country is caused by the corruption of ruling elite and bureaucrats. Tremendous amount of tax payers money is spent on wasteful expenses of politicians on themselves and also o their stupid adventures like metro bus and 9 lane highways in Islamabad and Lahore only. Do u also forget the several indirect taxes on everything we buy in this country? this 0.3 wht is a futile attempt to bring in more into tax net. Ask Nadra and the fbr why there is data of 30 lacs wealthy individuals in their computers but they do not dare to touch for tax?

banker | 8 years ago | Reply Big and medium sized traders (except a few professions) were already using parchi system. Thats why Dar is right when he claims that bank deposit/withdrawal ratio did not fall. However, things will change right before October deadline (or any revised deadline). Traders will try to get assurance that their filings will not be audited should they go for a NTN.

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asad rizvi | 8 years ago | Reply These are all businessman gimmick that traders have made substantial withdrawal from banks and now prefer cash transaction to avoid WHT. This could be true that traders prefer cash transactions. It is important to understand that our country's Economic misery is caused due to undocumented economy resulting low revenue collection, which is lowest in the world below 10 pct of the GDP. Acceptable global standard is between 30-35 pct. This is why Pakistan had to approach IMF over dozen times for assistance. Shortfall is the main cause of austerity demanded by IMF that refrains government from spending, which hinders growth and reduces job opportunity and hence, increases poverty poverty rate. Lack of funding deprives major part of population form education due to low budget. It is the cause of poor housing condition, pathetic health and sweet water availability. Energy sector woes is due to funding shortage, which is very expensive affair and and the moment Circular debt is mother of all the ills that demands nearly Rs 275 billion funding annually, though IMF has set a benchmark of Rs 250 billion, which is not an easy level to attain. Funding squeeze exerts extraordinary stress on Defense spending, which comes under severe pressure and criticism due to lack of awareness that prices of modern arms and ammunition and all related equipment have risen into manifolds in the international market. Genuine tax payers do not live in fools paradise and why should they shoulder all burden. Why these these protesting keep mum and do not raise voice against raising of airline and railway tickets? Why they do not make protest for increase in food support prices, which raise food prices in domestic market, which is down by nearly 25-35 pct (wheat, rice and sugar)? Why car prices are not reduced as Yen in last 3-years have weakened by 60 pct against US Dollar, which Pak Rupee during this period lost 18 pct of its value against USD? Why real estate prices and rentals have eased when steel prices in international market is down by nearly 70 pct in international market? There list is long and business community should know that this is the real cause of unrest in country, which needs to be addressed by the politicians and media simultaneously. Furthermore, people cannot be fooled with the business community gimmick that business community has started doing business either in cash or through some informal means as business community has taken out cash from banks. There could be few example, but in last month currency in circulation surged by mere Rs 15 billion, which could be due to EID ul Fitar withdrawal and is normal. Latest SBP data shows currency in circulation is Rs 2.87 Trillion, which should hit around Rs 3 Trillion, because history suggest that heaviest of nearly Rs 120-150 takes place in Eid ul Azha. Business Community wake-up and help the nation to recover, because Pakistan cannot afford Financial Adventurism.

Uzair | 8 years ago | Reply writer fails to mention that traders are taking huge risk by keeping cash or moving it with security guards. Even with security guards robbery if any will take away their hard earned cash. Even hawala handlers have to keep money in bank to reduce their risk. It's only at the end writer mentions that traders are taking 0.3% extra from retailer but this will increase the cost of doing business for traders who are not paying tax and that's the essence of this marvellous step taken by Gov. Those who don't pay tax should have higher cost of doing business than those who pay tax

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