Businessmen warn of go-slow against new tax

KARACHI: Businessmen are weighing an option to go-slow against the imposition of the withholding tax on banking transactions made by non-filers if the government doesn’t withdraw the levy, a trade leader said on Tuesday.
“The decision about the closure of markets will depend on the outcome of the meeting with the Finance Minister Ishaq Dar on Wednesday (today),” said Atiq Mir, chairman of All Karachi Tajir Ittehad. “However, the protest and demonstration will continue.”
Minister Dar called meeting of business and trade union representatives and Chairman Federal Board of Revenue (FBR) for Wednesday in Islamabad to examine proposals to be put forth by them.
A state-run media said the minister is likely to accommodate the proposals forwarded by the business representatives during the meeting.
FBR sources, however, said the government may not withdraw the tax levied through the Finance Bill 2015, which is aimed at increasing the number of return filers.
Businessmen and traders have launched a countrywide protest against the imposition of 0.6 percent withholding tax on banking transactions of non-filers of income tax returns.
The protestors include retailers, wholesalers, apex trade body of Pakistan, and a number of chambers and associations from across the country.
In the budget 2015/16, the government proposed to expand the scope of withholding tax on banking transactions by fixing 0.6 percent on all types of transactions by non-filers. Withholding tax of 0.3 percent will remain applicable only on cash withdrawal of Rs50,000 for the tax filers.
In 2005, the government introduced withholding tax on cash withdrawal at small percentage on transaction of Rs25,000 with an objective to broaden the tax base.
However, the law has been revised several times since then and through the Finance Act 2014, the deduction of withholding tax on cash withdrawal was redefined to 0.3 percent for filers and 0.5 percent for non-filers on withdrawal of Rs50,000.
The FBR is in favour of the new tax on non-filers, saying it will encourage people to become registered taxpayer and make their transactions documented.
The FBR spokesman and Member Inland Revenue Shahid Hussain Asad said banking transactions by undocumented persons protect black money in the economy.
Asad said most of the black money is invested into properties and the payments are made through pay order or demand draft.
He said the decision to levy the tax has been implemented on the recommendations of the standing committees on finance in the Senate and National Assembly.
He added that all the stakeholders, including the Federation of Pakistan Chambers of Commerce and Industry and other chambers were taken into confidence about the decision.
The member further said no additional payment is to be made on such transactions in case of registered persons.
According to some estimates, the black money is almost equal to the size of the formal economy.
The central bank’s data showed that Pakistan Real-time Interbank Settlement Mechanism settled 198,250 transactions worth Rs51.5 trillion during the third quarter of 2014/15 fiscal year.
There was an increase of 5.0 percent in volume and 21 percent in value over the second quarter.
The volume and value of internet banking transactions showed an increase of 10 percent and six percent, respectively.
The volume of mobile banking transactions decreased 15 percent, while its value increased 14 percent in Jan-March as compared to the previous quarter.
Similarly, automated teller machine transactions grew two percent in volume and six percent in value. Mir attributed the delayed protests to the unawareness of businessmen about the tax laws.
He said the government should find some other avenue to broaden the tax net. “There is no use of implementing the withholding tax, as the FBR is already losing its registered taxpayers every year,” he added.
The tax return filers were around 2 million when withholding tax on cash withdrawal was imposed in 2005. They stand at around 0.87 million.
However, it has been a major source of tax revenue. The FBR collected Rs11.47 billion during the first half of 2014/15, showing 26 percent growth when compared with Rs9.118 billion in the same half of 2013/14.
In the past, the FBR had made several attempts to bring retailers and wholesalers into the tax net to no avail due to political pressure and strong lobby against it. Asad agreed that there are a number of formal and informal lobbies in Pakistan, which affect policy formulation, including tax reforms.