‘Tax on bank transactions to affect financial inclusion’

KARACHI: Bankers expressed concern over the proposed 0.6 percent tax on all banking transactions of over Rs50,000 for non-filers and termed it a bad decision on the part of the government.
The tax proposal could affect the objective of financial inclusion and leads to undocumented cash economy, industry officials said.
Currently, the government charges 0.3 percent withholding tax from banks on the transaction of Rs50,000 or more, regardless of whether an accountholder is a taxpayer or not.
It is proposed in the Finance Bill 2015 that the banks will now be required to collect advance tax at the rate of 0.6 percent from 0.5 percent on all account transfers or transfers through banking instruments made by the non-filers.
Besides cash withdrawals, these tax rates would be applicable on the demand draft, pay orders, SDRs, CDRs, STDR, call deposit receipt and RTCs.
Financial inclusion is a priority area for the government and the State Bank and the government has recently launched National Financial Inclusion Strategy 2015/20.
“The banks are in favour of broadening the tax base to increase the revenues, but imposition of a new tax is not helpful,” CEO at a local commercial bank said.
“These measures will give desired results where the economy is 100 percent documented, but in countries like Pakistan such measures will prove unproductive.”
In Pakistan around 50 percent of the entire population is financially excluded with no access to any services such as formal savings, payments, deposits and credit, he said.
The Pakistan Banks Association (PBA) has also wrote a letter to the FBR chairman, casting doubts on new taxation on banks.
It strongly recommended restoration of Seventh Schedule (Banking Schedule) of the Income Tax Ordinance in its original form, which should be applied in true letter and spirit.
The Seventh Schedule was incorporated in the Income Tax Ordinance, 2001, vide the Finance Act 2007, on the premise that the banking sector is fully documented and is regulated by the State Bank of Pakistan. Therefore, the banking profits and gains, as disclosed in the audited accounts, should be acceptable to the taxation authorities, barring a few adjustments that would be essential to be made to the audited accounts.
As the SBP is an autonomous regulator of the banking sector, there is no need to duplicate the efforts on the part of government and the position ascertained by SBP should be accepted, it said.
About the proposal of super tax, the PBA said that this new one time tax has been imposed at four percent on banks’ taxable income for 2014 and three percent on taxable income of other taxpayers having income equal to or exceeding Rs500 million for the tax year 2015.
This is an additional burden on the existing taxpayers, especially on banks, who are paying taxes at higher rate than applicable to other taxpayers.
Imposition of flat rate of tax on income of banking companies from all sources for the tax year 2015 and onwards will have an adverse effect on the banking sector, it said.