Ishaq Dar: Mr 0.6%

Govt looks to impose tax on every transaction done through banking channels

ISLAMABAD:

Unable to increase revenues through direct means, the government seems to have run out of ideas.

Perhaps this is the reason why Finance Minister Ishaq Dar looked to make some amends.

With growing criticism against the draconian measure to charge 0.6% tax on every banking sector transaction – irrespective of whether it is carried out by a widow, peon or an executive – Dar hinted at setting a minimum exemption threshold to spare at least the poorest from the levy.

Even the beneficiaries of the Benazir Income Support Programme, living on a monthly stipend of Rs1,500, will have to pay 0.6% tax on each cash withdrawal – irrespective of the amount.

The government is ready to consider recommendations regarding the 0.6% advance income tax on banking instruments and all modes of transfer of funds, which will come into force from July, said Dar on Tuesday. He was speaking at the forum of the Senate Standing Committee on Finance and Revenue.  In fiscal year 2013-14, banking sector transactions, valuing Rs6.3 trillion, were carried out by all and sundry. The government wants to retain 0.6% or roughly Rs38 billion of this amount. In the new budget, the government has proposed to charge 0.6% tax on every banking sector transaction by a non-filer, carried out through cheques, payee accounts, bank drafts, pay orders and other instruments.

In the budget documents, it has estimated that the tax will generate Rs35 billion in the new fiscal year, as it has not spared any banking instrument from the levy. According to the proposal, if a person draws cash through cheque or transfers funds through a bank draft or any other method, he will be subject to this 0.6% tax.

Hence, the concept of a non-filer becomes irrelevant. In a population of 190 million people, income tax filers amount to 875,000, indicating the tax machinery’s inefficacy that has over the years relied on withholding taxes to increase revenues instead of going after people to widen the tax net.

In the new fiscal year, it has imposed Rs142 billion income taxes and, out of that amount, Rs89 billion are withholding taxes that are indirect in nature, suggesting the government has not done anything to broaden the base.

The levy has covered even pensioners and persioners’ widows who receive money through the banking channel.

Headed by Senator Saleem Mandviwalla of the PPP, the standing committee would discuss the Finance Bill 2015, aimed at suggesting amendments in the proposed budget. The standing committee recommended to the finance minister to exempt banking transaction up to Rs50,000 – a threshold that is currently applicable on cash withdrawals.

Currently, the government charges 0.3% tax from filers and 0.5% from non-filers on cash withdrawals above Rs50,000.

In the new budget, the government has also proposed to increase cash withdrawal tax from 0.5% to 0.6% but has reduced for filers from 0.3% to 0.25%.

Dar said the committee might review the advance income tax of 0.6% on all banking instruments and recommend either lowering the rate or setting a minimum exemption threshold.

People have started withdrawing cash from banks and converting into gold aimed at avoiding taxes, claimed Senator Talha Mehmood of JUI-F. The pensioners will be subject to new taxes, considering they do not file income tax returns, said Mehmood.

Dar maintained that there will be no tax on idle money in bank accounts. However, contrary to this, in developed countries, governments charge taxes on idle money in a bid to promote economic activity.

The new levy will be equally applicable on blue-collar workers (drivers and chefs) who draw their salaries through cheques, said Senator Mohsin Aziz of PTI. Aziz said that the move will be counter-productive and people will resort to informal banking channels — a move that the government already looks to discourage.

Meanwhile, Federal Board of Revenue (FBR) Chairman Tariq Bajwa maintained that non-filers were fully exploiting the banking system. He said that the FBR did not have access to banks’ database, therefore, it was unable to track even documented transactions. Bajwa claimed that the new tax will not have any adverse impact on the banking sector. He said that despite a levy of 0.5% tax on just cash withdrawals last year, banking sector transactions went up. Dar disclosed that the FBR wanted to impose 0.6% tax on transactions carried out by filers but he turned down the proposal.

Published in The Express Tribune, June 10^th, 2015.

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