Talks between the government and business community reached a deadlock on Wednesday after Finance Minister Ishaq Dar refused to accept the demand to either abolish 0.6% withholding tax on banking transactions or at least suspend the levy until an agreement was reached.
The representatives of industrialists and traders met with government officials in an effort to convince them to withdraw the tax, which had been levied on all banking transactions valuing more than Rs50,000 conducted by non-filers of tax returns with effect from July 1.
Read: Ishaq Dar: Mr 0.6%
The transaction tax is discouraged all over the world as it does not capture the real income, resulting in an increase in the cost of doing business.
The finance minister stuck to his guns in the almost four-hour long meeting despite pressure from within the ranks of the ruling party that had a strong base among traders and industrialists.
Punjab Chief Minister Shahbaz Sharif was also said to be unhappy with the 0.6% tax after traders staged a strike in major cities of the province.
Dar turned down the demand of suspending the application of the tax for one month as a pre-condition for further negotiations.
PML-N’s National Assembly member Mian Manan threatened that if the demands were not accepted, an indefinite strike call would be given. He and two other MNAs represented the traders in the meeting.
Read: More voices raised against the 0.6% tax
The biggest concern of the traders was that if they agreed to come in the tax net, the Federal Board of Revenue (FBR) would start harassing them. They asked the government to first check corruption in the revenue board as taxmen were using arm-twisting tactics to collect revenues.
“Traders are still paying taxes, but the money is going in the pockets of taxmen instead of national coffers,” said a representative of the traders on condition of anonymity.
“It has been decided to constitute a 19-member committee comprising members of the National Assembly, traders and chambers to find a solution,” said Dar after the meeting.
He said the committee would start deliberations from Thursday and try to reach a conclusion as soon as possible.
Dar hinted at promulgating an ordinance to bring changes in the tax rules if an agreement was reached by the committee. He did not comment on whether the government would consider reducing the 0.6% tax to settle the dispute.
He pointed out that the federal government did not have powers to make any changes in the levy as it had given up the authority and now parliament was enjoying the powers.
Parliament supports the traders in their demand for abolishing the tax, said Abdul Manan.
Dar acknowledged that some of the concerns of the business community were genuine and the government would try to address them. Traders sometimes did business on thin margins and the FBR applied higher taxes, he said, adding such issues forced the traders to keep their sales in separate undeclared bank accounts.
Through the Finance Act 2015, the government has started collecting 0.6% withholding tax on every banking transaction valuing more than Rs50,000 and carried out by a person who does not file income tax returns.
It claims that the move is aimed at broadening the tax base as it will force people to file tax returns. The levy is estimated at fetch at least Rs35 billion, according to the FBR.
The government is also charging 0.3% withholding tax from the tax return filers on cash withdrawal, indicating that the purpose of 0.6% levy is enhancing revenues instead of broadening the base.
An FBR official expects an agreement in the next few days as the tax may be reduced. He, however, stressed that the gap between the return filers and non-filers would still be maintained.
“The business community has demanded an immediate withdrawal of the 0.6% levy,” said Mian Idrees, President of the Federation of Pakistan Chambers of Commerce and Industry after the meeting.
He said the finance minister’s attitude was positive and he would consult the Attorney General of Pakistan whether the tax could be suspended.
Published in The Express Tribune, July 9th, 2015.
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