The withholding tax controversy

The withholding tax has hit traders where it hurts the most. On all banking transactions valued at over Rs50,000 from one account in a single day, they get hit by a levy of 0.3 per cent till August 31, the rate of which will increase to 0.6 per cent on September 1 if banks find that traders haven’t filed their tax returns. This was a move by the government that hit a snag as traders, mainly those from Punjab, demanded the withdrawal of the levy after initially agreeing to come under the tax net. The question that now comes to mind is why are traders protesting against the withholding tax on banking transactions after earlier agreeing to come under the tax net? Why are traders the only group opposing the withholding tax so vehemently? Why do they not want to file their tax returns?

Traders have upped their protests against the withholding tax because they have been encouraged by elements within the ruling party supporting them in their demands in a bid to win votes come election time. The business community has been the most vocal on this issue because it conducts transactions valued at over Rs50,000 in a single day a lot more than other citizens. Coming to the issue of their unwillingness to file tax returns, the reason lies in traders being able to get away with under-declaring their incomes, not declaring their assets that have piled up over the years and evading taxes that accompany them. The argument that officials at the FBR ‘harass’ them may be true, but it in no way justifies remaining outside the tax net for years. The government has a promise to keep to the IMF. It has to show that it has taken measures to reform the tax system and increased revenue collection. The banking transaction tax may be an easy way out to widen the tax net. But if this forces people to file their tax returns, then the measure can be considered a success. Ordinary citizens have started comprehending this idea, but the business community clearly hasn’t. Pakistan has long suffered from a low tax-to-GDP ratio. It is time this changed.

Published in The Express Tribune, July 29^th,  2015.

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