Savings are the backbone of every economy that form the foundation of growth and investment in the country. They are the main source of credit for businesses, industry and agriculture on which the whole banking industry is based. In Pakistan, the significance of savings is higher and indispensable because of the high cost of living, which has led to a dismal savings rate. However, instead of encouraging the culture of savings by providing incentives to depositors, the successive governments have since forever levied an exorbitant fixed withholding tax of 10% on total profit from savings irrespective of the amount.
To make matters worse for bigger depositors, the former government, of the PML-N, imposed an outrageous withholding tax of 17.5% on total profit for non-filers if its amount exceeded Rs500,000 per annum. Instead of rectifying this situation, the current PTI government has jacked up this withholding tax even for compliant tax-filers from 10% to 15%. The outrageous withholding tax of 17.5% imposed by the PML-N government has also been jacked up to an unbelievable 30% irrespective of profit exceeding Rs500,000 per annum or not. This punitive action on profit from savings of depositors, even if they are non-filers, is beyond comprehension considering that savings are imperative for the economy and needs to be promoted under all circumstances.
Otherwise, people will start withdrawals from banks and invest in other non-revenue generating commodities, triggering runaway inflation. Instead, profit on deposits should be treated as just another form of income for the public that is currently subject to an unjust minimum tax of 15%. Even comparative taxes on capital gains in the stock market and real estate transactions are much lower than 15%. Therefore, the present government is requested to review this injustice and give some relief to the poor depositors by providing them some incentives to survive at this high cost of living instead of further penalising them.
Published in The Express Tribune, January 8th, 2022.