Tuesday December 06, 2022

Taxing productivity

October 05, 2022

Pakistan is among those countries with a very low savings rate. The main culprit for this is over-taxation. At present, taxes on profits go up to 30 per cent. Given that the inflation rate is over 25 per cent, even someone getting a 13 per cent return from the bank on their deposits will lose 12 per cent on their principal amount annually. This is before taxes are factored in. It has been observed that those with savings accounts are often unable to invest directly in businesses. They can either keep their deposit with a bank or savings organizations, invest in property, or purchase dollars or gold. The latter two are tax free but are basically a dead investment for the country because they don’t create jobs. On the other hand, the money deposited in banks and savings organizations is invested in productive economic activity, and yet, we discourage such productive investments by imposing heavy taxes on them.

I would request the finance minister to look at this issue and eliminate all taxes on profits on bank deposits, helping increase our savings ratio. It is also requested that the limit of investment in savings certificates and pensioners accounts be enhanced to Rs10 million, as the limit has been the same for the past five years. These steps will curb inflation and increase productivity.

Humayun Iqbal Shami