Relief for vulnerable groups sought: bank levy adversely affects deposit base: SBP

The State Bank of Pakistan (SBP) has conveyed to the government that deposits base of banks has been adversely affected by 0.4 percent withholding tax on banking transactions of non-filers (0.3 percent on filers). It suggested withdrawal of the levy for vulnerable groups in budget for the next fiscal year (2017-18).
Sources told Business Recorder that the SBP proposed to the Federal Board of Revenue (FBR) that the banking industry has time and again expressed its reservations that section 236P (withholding tax on banking transactions) of Income Tax Ordinance 2001 was badly affecting the deposits base of the banks.
The SBP, sources added further, maintains that it is a matter of concern that Pakistan has one of the lowest saving rate as a percentage of GDP among regional countries and imposition of advance tax on banking transactions is further discouraging the public from using banking channels for their financial transactions.
Additionally, withholding tax on banking transactions is creating problems for the low income groups and marginalized borrowers such as widows, pensioners, retirees, farmers and students etc which falls below the taxable threshold limit and accounts for their remaining non-filers and yet they are now charged the higher non-filer rate.
"It is a matter of concern that withholding tax is deducted on their savings whenever they make withdrawals, which is unfair as they cannot claim credit for the deducted amount due to their lack of education and knowledge of tax filing," SBP stated while adding that the sections should be exempted for these vulnerable groups or the threshold of transfer should be increased to Rs 100,000.
The government had imposed 0.6 percent withholding tax on banking transactions on withdrawal of more than Rs 50,000 for non filers in the budget 2015-16 which was reduced to 0.3 percent subsequent to the protests by the traders. The government has recently increased the rate from 0.3 percent to 0.4 percent. The first proposal of the SBP is that section 236P should ideally be removed, however, if this is not possible, exemption should be provided to students, widows, pensioners, salaried class and farmers. The second proposal is that the threshold of transfer/transactions should be increased to Rs 100,000.
Salary is subject to deduction of tax at source and tax applicable on the entire salary is deducted by the employer. At the time of its withdrawal/transfer from/to banks a tax is again imposed which is double taxation and grossly unfair. Agriculture income of a person is exempt from tax u/s 41 of the Ordinance; however, under section 236P tax is collected on accounts maintained by farmers, which is unjust as they are not able to claim refund of this tax. This will negatively impact on the National Financial Inclusion strategy of Pakistan, SBP added.