The government's own policies - low rate of return and withholding tax on cash transactions for non-filers - are responsible for high cash to deposit ratio, said a former finance minister and a former advisor to Ministry of Finance.
Former Finance Minister Dr Hafeez Pasha, however, refused to comment on satisfactory level of cash to deposit ratio and stated that cash to deposit ratio policy is set by State Bank of Pakistan (SBP). Pasha was surprised over Finance Minister Asad Umar's statement with regard to cash to deposit ratio and stated that any policy must come from the SBP.
The previous government of the Pakistan Muslim League (Nawaz) imposed 0.6 percent withholding tax on banking transactions for non-filers which was reduced to 0.4 percent through Economic Coordination Committee (ECC) of the Cabinet decision after pressure by the business community and subsequent negotiations with them.
However, Finance Minister Asad Umar in the Finance Supplementary (Amendment) Bill, 2018 increased withholding tax on banking transactions for non-filers from 0.4 percent to 0.6 percent Hafeez Pasha said that the government must consider carefully before taking any decision as availability of financing to the private sector will have impact on inflation which is already on the rise. He said that there is no growth in the deposits.
Pasha said that people have started feeling stoke of inflation which will increase further with the cash circulation following availability of loans to the private construction sector. He said that stabilisation should be government's priority for at least two years before making financing available to the private sector for construction of houses; otherwise, cash circulation will increase enormously and stoke further inflation. Pasha suggested the government for taking up housing project after achieving stabilisation.
Former Advisor to Finance Ministry Dr Ashfaque Hasan Khan stated that cash to deposit ratio is high because of low rate of return and imposition of withholding tax on cash transactions. The people are now making deals in cash instead of routing through banks. He said that reduction in cash transactions will have positive impact on the inflation, he added.
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