KARACHI, June 14: The government in the budget 2006-07 has doubled the tax on cash withdrawal of Rs25,000 from banks, but traders and others found an easy way to withdraw cash as much as they required without paying a single rupee to the government.

Bankers said there was no restriction on withdrawal of cash through multiple cheques, and it had been a practice that dozens of cheques of less than the limit were used to withdraw millions from a single account without paying tax.

Although the business community has a logical point that the government has been taxing the taxed money, the government found it comfortable to increase withholding tax from 0.1 per cent to 0.2 per cent on cash withdrawal of Rs25,000. Banking sources said the State Bank was well aware of this practice but did not interfere to stop it.

However, a top banker told Dawn the government would soon move to stop this practice and the State Bank might get directives to bar the traders and business community from misusing the cash withdrawal limit. A proposal is already under consideration in Islamabad that Rs25,000 could be withdrawn from a single account on each day, while more withdrawal from the same account on the same day through multiple cheques would be considered liable to tax.

The cumulative figure of outflow from a single account would be taken for tax. However, officials at the State Bank were not aware of this development. Bankers said the use of multiple cheques had increased tremendous pressure on banks as the workload multiplied.

The banking sources said an Islamic bank had to handle over 100 cheques of a single account in a single day which meant that over Rs2.5 million were withdrawn without paying a single rupee as tax.

“This is a normal practice that a trader uses 40-60 cheques for the withdrawal of cash just to avoid tax, but it puts enormous pressure on banks,” a bank manager told Dawn on condition of anonymity. He said the practice of using multiple cheques was very high in Judia Bazar, the hub of trading activities in Karachi where most of the banks have their branches and density of bank branches in this area is the highest in the country.

The government has not yet issued the figures of amount collected through 0.1 per tax on cash withdrawal, but the bankers said the amount could have been much more than what it collected.

“It is not only the workload, but the issuance of cheque books has also increased manifold,” said the banker. He said the practice of using multiple cheques had substantially increased the cost of banking.

The bankers said the problem of multiple cheques was not only time consuming, but it also required more workforce to deal with it. It goes against banks’ efforts to reduce the cost of banking and save time.

The government expects to earn Rs1 billion through the doubling of tax on withdrawal of cash. The bankers suggest that the use of multiple cheques should be barred, while traders want tax on cash withdrawal abolished.