IN an underdeveloped country like Pakistan the importance of savings is critical, but owing to the high cost of living, where people can hardly make the two ends meet, the savings ratio is dismal.

However, instead of encouraging the culture of savings and providing more incentives to depositors, the government has since forever levied an exorbitant withholding tax of 10 per cent on the total profit from savings irrespective of the amount even if the profit accrued is one rupee.

To make matters worse, for bigger depositors, the last PML-N government imposed an outrageous withholding tax of 17.5pc on the total profit for non-filers if its amount exceeds Rs500,000 per annum.

This punitive action on profit from savings, especially for the bigger depositors, who are getting more than Rs500,000 profit per annum, even if they are non-filers, is beyond comprehension considering that savings should be promoted. Otherwise people will start withdrawals from banks.

Profit on deposits should be treated by the government as just another form of income which is currently subject to an unjust minimum tax of 10pc even if a poor person earns Rs100 as profit.

On the contrary, the same PML-N government, which imposed an irrational withholding tax of 17.5pc on the profit of non-filers exceeding Rs500,000, jacked up the tax-free limit on income tax from Rs400,000 to Rs1.2 million per annum.

Furthermore, the income tax rates for those earning Rs1.2 to 2.4 million per annum was reduced to just five per cent and for those earning Rs2.4 to 4.8 million per annum was reduced to just 10pc. The latter would even include the chief executives of some corporations. The government should review this anomaly.

Fuad Enver
Islamabad

Published in Dawn, January 22nd, 2019