THE government is doing the right thing to hold out against continuing pressure from some groups against the withholding tax imposed on banking transactions of non-filers of income tax.
The tax itself is meagre — 0.3pc of all transactions above Rs50,000 in a single day — and the measure is non-coercive in the sense that the government is not saying it will pursue and penalise non-filers beyond imposing this tax.
The measure impacts the business community more than individuals since the size of daily transactions is very large amongst businesses, and many business owners have grown accustomed to using personal accounts to settle their transactions.
The government has already reached an understanding with a large section of the trader community, which has been at the forefront of opposing this measure, to reduce the size of the liability in return for an assurance that the community will enter the tax net and file their returns before September.
Another section of the trader community, as well as cotton ginners, are continuing to protest the measure, thereby revealing their hand as non-filers and parties opposed to documentation of their transactions.
One argument made against the measure is that it will serve as a disincentive to bring money into the banking system, and people will simply opt to carry out their transactions in cash. If this is true, it will be a short-lived phenomenon.
It is true that Pakistan has a large cash economy, but at some point or the other, this cash does touch the banking system and cannot permanently divorce itself from formal systems of payment, especially given the volume of the turnover in wholesale markets.
The government should remain steadfast in its resolve to penalise money that refuses to be documented with the tax authorities. Eventually those protesting must realise the futility of their efforts and resolve to file their returns like many other businesses do. That is the way of civilised countries, and Pakistan cannot be an exception for ever.
Published in Dawn, July 28th, 2015
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