Tax on cash withdrawals stokes dollar demand
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KARACHI: The surplus liquidity instead of going into banks is chasing dollars in the wake of tax on transactions and withdrawal of money.
The government, which preferred to tax the already taxed money in this financial year, shocked depositors, traders and others who have to deal with banks for payments or withdrawal on a regular basis. Even the salaried class will have to pay tax on their already taxed salary.
Dealers in the currency market said surplus money was not going to banks for deposits.
Instead, it has started flowing towards the open currency market for dollar buying.
“The dollar was traded as high as Rs103.20 in the kerb market on Saturday. Demand for the currency is still high,” said Anwar Jamal, a currency expert and dealer. The greenback has been above Rs103 for more than a week now.
Inflows of foreign currencies normally remain very high during Ramazan as thousands of overseas Pakistanis who return home to celebrate the holy month and Eidul Fitr with their families bring hard currency with them. Even those who prefer to stay abroad send higher amount of money to their families.
At the same time, Zakat and charity funds are also sent back home during the holy month.
Ramazan is also the month of highest remittance inflows in Pakistan which suppresses the dollar demand in the market, lending strength to local currency. Before Ramazan, the dollar crossed Rs102 in the inter-bank market and started heading towards Rs104 in the open market.
The State Bank of Pakistan (SBP) intervened and announced to provide the dollar at Rs103 through the National Exchange Company. It was considered that the central bank set Rs103 as base price for the dollar in the open market. However, the US currency fell even below Rs103 the very next day after the announcement.
Now, the dollar has become attractive again despite no demand for Umrah or summer vacations.
Currency expert said traders and others who have surplus money are buying dollars instead of depositing them in banks. There could be an alternative payment system through dollars.
The government has imposed a tax of 0.6 per cent on cash withdrawal from banks if the sum of money is Rs50,000 or above. The government also imposed tax on transactions.
Some trade and industry associations in Punjab have announced to demonstrate against these taxes on Monday and Tuesday.
The salaried class, the most tax-compliant segment of the society, also comes under this tax.
Published in Dawn, July 5th, 2015
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Comments (41) Closed
Jul 05, 2015 07:30am
Maybe the media could constantly lambast the Government and FBR day in and day out to effectively force them to increase tax collection. If only the top 5% payed their taxes, our revenue could increase by a massive margin.
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Jul 05, 2015 07:33am
The government should negotiate its position and try to enforce documentation of all aspects of economy . The inability to collect legitimate sales tax on day to day transaction forces government to take the easy way out . Taxing the bank transaction will definitely force capital away from legal banking system. Such liquid capital in a developed economy would find its way to other investment tools but in Pakistan it will probably leave the country to be invested elsewhere.
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Jul 05, 2015 07:48am
This is highway robbery! Then, I should not keep my money in the bank! What right does government have to tax taking out my cash from the bank
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Jul 05, 2015 07:53am
Tax is just .6% on 50000 or more. How many common people withdraw that much amount? Not many, which means it will affect only the elites of the country. . 6% is not even a full rupee on 100 rupees withdrawals. If this money is spent on energy projects, people should happily pay. I will.
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Jul 05, 2015 08:13am
0.6 percent means Rs. 600 per Lac, pretty high.
Infact PM Modi had deliberations on similar grounds. Their logic was to get away with Income tax completely and rather Tax each & every transaction whether at Bank or at any shop. Logic was, that will bring everybody in Tax fold.
But the plan is revolutionary and may be ahead of it times so it is shelved for now
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Jul 05, 2015 08:32am
Another unthoughtful mistake of the Govt.
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Jul 05, 2015 09:03am
Most unthought of policy of the government. It will deter economic growth and push cash flow out of the legal channels.
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Jul 05, 2015 10:03am
Tax to build more metro buses???there is no gas, electricity, schools, security or hospitals. Why should anyone pay tax! Tax the land lords first, this is unacceptable.
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Jul 05, 2015 10:08am
The government has imposed a tax of 0.6 per cent on cash withdrawal from banks if the sum of money is Rs50,000 or above.
Correction: No tax on 50,000 but above only
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Jul 05, 2015 10:17am
Everyone should start using debit cards for transactions. That way all the daily affairs of the economy are better documented.
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Jul 05, 2015 10:24am
This is most regressive form of a tax. It will never achieve its aim of documenting economy. In fact it shall make cash transaction more common. Three Cheers for Charted Accountant Minister who is also claiming to be expert on taxation. His so called expertise starts from Indirect Taxes and ends on piling it up each year on the shoulders of teaming masses.
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Jul 05, 2015 10:28am
FBR and SBP clarify about deposit of over Rs. 50,000 shall 0.06% tax or not ?
withdrawal the government has imposed a tax of 0.6 per cent on cash withdrawal from banks if the sum of money is Rs50,000 or above. Clarify on DEPOSIT.
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Jul 05, 2015 11:47am
This is the same mafia which looted the public by freezing their foreign currency account in 90's.
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Jul 05, 2015 11:52am
http://www.dawn.com/news/1192195/pakistan-must-reduce-indirect-taxes
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Jul 05, 2015 12:00pm
Where is the taxpayers money going, someone should ask the Govt. to generate annual reports, in line to make people know where the tax is being spend.
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Jul 05, 2015 12:36pm
There should be a tax on all dollar transactions instead of Rs withdrawals to prop up demand for Pak Rs.. Let exporters compete on improving efficiencies instead of depreciating Pak Rs which costs the whole country dearly... (debts become expensive, local buying power depletes, worse off with inflation, etc....) Instead a strong Pak Rs will propel domestic demand and thus production... Local producers will benefits and increase tax earnings for the Govt. in value terms at-least...
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Jul 05, 2015 01:16pm
@Hashim Khan So do you mean to say, a transaction through debit card even above 50,000/- is not taxed ?
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Jul 05, 2015 01:53pm
It's not the same govt who dug the grave of economy in 1998 by freezing foreign currency accounts. Now another marvelous step of "Sheikh Chilli's" government.
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Jul 05, 2015 01:57pm
Now if government withdraw it today we will blame government not taxing black economy and increasing tax base.
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Jul 05, 2015 01:58pm
@Lucky Star These are your perceptions only. Govt will not spend collected taxes on wish of payee. They will ultimately go to pockets of rulers.
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Jul 05, 2015 02:36pm
No mention its only for non-filers if amount is over 50,000rs? Also, yes there is tax on both filer and non-filer if its cash over 50,000rs . I agree with public and i am myself waiting for 15 th when my name will appear on Tax payers list. I got registered as tax payers last month but one has wait till 15 th of every month for name to appear on list. How hard it is for FBR to update list daily? Its not like some human is sitting there updating it , it is done automatically.FBR also need to stop sending warning message to people who are already filers that "file your return or face consquences?".Can FBR first update system to ensure they can atleast manage and learn to update active tax payer list daily(hint: you need to buy a software or may be they still have a person manually entering names who knows?).
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Jul 05, 2015 03:52pm
Some of the unintended consequences:
1. It is easier to track suspicious or even downright corrupt activity through banking channels. It provides a paper trail acceptable in the court of law as evidence. Law-enforcement and FBR will lose this ability with this disincentive on using banks.
2. The country's bank deposits will be threatened. Please note house wives, pensioners, overseas Pakistanis, job-less individuals etc also use banks. They will all make a move towards cash with this bank tax. This is already happening.
3. This creates a disincentive for Overseas Pakistanis to use banking channels to support their loved ones. It also creates an incentive to NOT invest in the local economy.
4. People with access (overseas Pakistanis in particular) will store cash in foreign bank accounts helping lending in foreign economies when the money very well could have been injected into banks in Pakistan to be lent out.
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Jul 05, 2015 03:52pm
GOP needs to understand that economic policy is not a game. Every policy can have serious unintended consequences. In a country where almost the whole non-corporate economy is off the books - the worst incentive would be to further push it off.
This tax punishes domestic parents, pensioners, elderly, anyone without a job, and most of all overseas Pakistanis and their families. People who do business off the books and illegally rob State revenue will do business as-usual and thank their stars for not using the banking system in the first place. Ones that did make the mistake of using banks will quickly switch to cash.
Policy makers – BE SMART. Do the right thing. Your priority should be to first ensure the economy is fully on the books. Traceable flow of funds and an economy on the books is the first step to efficient TAX collection.
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Jul 05, 2015 06:11pm
Double taxation is not justified whether small or large . As far as I know Bank already charging fro cash withdrawals . Next budget this will become 1%. Not fair
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Jul 05, 2015 06:12pm
Taxes in Pakistan are inly for salaried class and if this section of society do not vite intelligently they will keep on suffering at the hands of industrialists.
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Jul 05, 2015 08:45pm
there should be no tax at least on salaried person for
transaction.
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Jul 05, 2015 09:49pm
This is extortion! Instead of improving governance, Government is bleeding the working class to death.
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Jul 05, 2015 11:58pm
Most people automatically seem to assume that taxation is a gov't right. Taxation is theft as no one has claim over the assets of another. To avoid this, simply privatize services. Those who want it can pay for them. Religious and philanthropic institutions (private like Edhi) can be set up by those willing to help.
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Jul 06, 2015 12:45am
There must be a campaign by tax payers to not to pay taxes.
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Jul 06, 2015 01:16am
what happen to Deposit of Overseas Pakistani, when we send money to Pak, on deposit over & above tax 0.6% ? similar way to withdrawal, its a consequences of money send to legal banking channel. Ministry of Finance and PML N similar policy when they freeze non-resident a/c, now our Pak RS. is tax on Deposit and withdrawal, its looks mismanagement. Govt should clarify their policy against overseas Pakistan Rs. Account. This looks suspicious to increased other non banking channel to use by overseas Pakistan.
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Jul 06, 2015 03:57am
@UnshacklePakistan willing to come out on street and protest like greeks? Or we are too cowards to do that? Government did it because IMF said so. Our government has no choice, they do what IMF tells them.
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Jul 06, 2015 05:06am
The biggest tax thief of the country sits in the PM house. How do you expect this government to increase tax base? That wont happen if we keep circling between PPP and PML-N.
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Jul 06, 2015 05:35am
This government is absolutely stupid...now they will create an alternate black economy because of this step...if u want to increase the tax net impose tax on agriculture sector and not squeeze the salaried class or even the corporate sector who is already heavily taxed...you are choking the middle class and letting the big land Lords off the hook...how sick are u?
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Jul 06, 2015 05:57am
Now our overseas money tax, when send our family FBR will tax 0.6% on deposit and withdrawal as rumors circulating in UAE that Government has tax Overseas remittance withdrawal and Deposit ?
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Jul 06, 2015 07:12am
Very bad policy of the govt. as it encourages hoarding and discourages banks' investment due to less saving from people (both consumers and businesses) in banks. Moreover, its rightly stated its a tax over taxed money! Govt. shall encourage bank saving and business. This is not the right way of increasing taxes.
This is now the right time for the govt. to look at the ways of improving tax collections rather than imposing these nonsense taxes. I do not see that the govt. cannot do and achieve in a short span of time. But it needs commitment and sincerity and not the short-cut.
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Jul 06, 2015 07:30am
I will gladly pay the tax.its time we realize that the govt. Cannot function without taxation..
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Jul 06, 2015 07:31am
@Addy taxpayers???? .who pays taxes buddy.
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Jul 06, 2015 08:22am
@Atif Jafri I fully agree, it is another extortion of money at government level beside the withholding tax. Pakistan Zindabaad.
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Jul 06, 2015 08:45am
Why is the government not taking the political elite? every MPA must be asked to pay Rs 100 core every year, this is just 10% of the money they loot from government treasures.
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Jul 06, 2015 09:51am
We need to understand here that 0.6% tax is for non filers, and there is no tax for filers. I am a salaried person and i am filing my returns yearly, hence no tax for me. Most of the business / salaried persons don't have their NTN. Its necessary to get awareness of filing of return from this year, because filer and non filer are differentiated in each and every thing for example on registering a new car, on each and banking transaction.
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Jul 06, 2015 12:08pm
traders across the country should had raised their voice right after the budget was presented. Now after getting approval from NA its very difficult to abolish this harsh tax on bank transactions.
However an organised protest may still give some results.
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