Retail sector’s bank deposits down 17 percent

KARACHI: The bank deposits of retail sector have declined over 17 percent owing to the government’s move to document the transactions made by traders.

According to the data of bank deposits by category of deposit holders released by the State Bank of Pakistan (SBP) on Wednesday, the bank deposits of retail trade came down to Rs146.5 billion by the end of March as compared to Rs176.83 billion by June 2015.

Through the Finance Act, 2015, the government imposed withholding tax on non-cash banking transactions made by income tax returns non-filers. The objective of the levy was to document the economy and bring persons having taxable income into the tax net.

Despite increase in the cost of transactions for non-filers and introduction of an amnesty scheme for retailers, the government failed to attract this segment into the tax net. The central bank in a report said the imposition of withholding tax on banking transactions for non-filers led to a decline in deposits growth, particularly those of private businesses.

Besides, this levy also promoted increase in the use of hard cash and prize bonds for the settlement of transactions, it added. The SBP in its annual report 2015/16 said: “…with the imposition of withholding tax on non-cash banking transactions, the use of cash would increase further.”

The bank deposits of this sector are falling gradually since the imposition of the withholding tax. The deposits of retail trade stood at Rs176.83 billion by June 2015, which further reduced to Rs163 billion in March 2016 and to Rs146.5 billion by March 2017.

The total deposits of commerce and trade also fell six percent to Rs353.75 billion by March 2017 from Rs376.85 billion in June 2015. The restriction of 100 percent cash margin requirement; however, improved the bank deposits of importers and wholesale sector, which increased to Rs31.29 billion and Rs105.7 billion, respectively, by March 2017.

The overall deposits of the banking system; however, improved to Rs10.88 trillion by March 2017 as against Rs9.52 trillion in the same month of the last year, showing a growth of 14.28 percent.