ISLAMABAD, June 29: The idea of 0.1 per cent withholding tax on cash withdrawals has been imported from Indian banking cash transaction tax, informed sources told Dawn on Wednesday. The tax would generate more than Rs5 billion and would be effective from July 1

India had announced the tax in the budget for 2005-06 in March this year, but later, on persistent demand from taxpayers, the tax was withdrawn.

In Pakistan, the tax officials had not only introduced the scheme but increased the threshold of exemption to Rs25,000, whereas in India it was Rs10,000, the sources added.

The Indian tax documents available with Dawn showed that its tax officials had worked out a comprehensive strategy and methodology for deduction of tax by the scheduled banks in a separate exhaustive chapter announced through the Finance Act 2005.

It speaks about the powers of assessing income tax officials to deal with the levy; different modes of cash withdrawal and other financial instruments; tax to be deposited to the government by 15th of every month; filing of a return by banks by the end of the tax year; in case of failure of collecting tax or filing return by banks, notice will be served on the banks; aggrieved banks may file appeal to commissioner appeals; and a comprehensive appeal and penalty system.

However, the Pakistani concept of the levy announced through the Finance Act 2005 only mentioned that the banking company will deduct tax at the time of withdrawal of cash exceeding Rs25,000; and that tax will be not be deducted from withdrawal of federal and provincial government, diplomat or diplomatic mission or a person who produces certificate from the commissioner of income tax.

The scheme did not speak about whether the levy would be applicable on amount less than Rs25,000 in one transaction or any single day or many transactions of less than the threshold in one day.

It also did not speak about a transaction, whether it is a bank draft or banker’s cheque or any other financial instrument on payment of cash exceeding Rs25,000 on any single day by a person from any scheduled bank; or a transaction, being receipt of cash from any scheduled bank exceeding Rs25,000 on any single day by a person on encashment of term deposit, whether on maturity or otherwise, from that bank.

Bank officials told Dawn that they had not received any instructions or letter from the Central Board of Revenue or the State Bank for deduction of 0.1 per cent tax from clients.

When contacted a senior CBR official told Dawn that the board did not issue any instructions to banks. He said it is the responsibility of the SBP to issue guidance to the banks for deduction of the levy.