KARACHI, April 3: The State Bank has detected a malpractice that banks are wrongfully taxing their customers on withdrawal of cash, and asked all banks to stop this practice immediately.

The government has levied withholding tax on withdrawal of cash if the amount of transaction exceeded more than Rs25000. It was changed last year. The limit of Rs25000 per transaction was changed to per day while the rate of withholding tax increased from 0.1 to 0.2 per cent.

“It has been observed that while implementing the above instructions of the CBR, the banks are deducting withholding tax from their customers by clubbing cash withdrawal transactions done on different dates into a single posting date.

This has resulted in excessive deduction of tax in some instances,” said a SBP circular issued on Tuesday.

Millions of transactions are being made through ATMs and most of the people never know how much withholding tax they are paying on their cash withdrawals. These huge transactions provide an opportunity to banks to tax more without informing the customers.

Banks used to ignore complaints as in case of credit cards, they justify their acts. Thousands of complaints were made to banks against the illegal practice.

Most of the complaints related to late fee deduction despite the fact that credit cards holders timely deposited their charges in time.

Hacking, misuse of stolen cards, non-payment of insurance to credit card-holders in case of theft, etc., and a host of other complaints were never attended by banks or the State Bank.

Tons of complaints about non-functioning ATMs were also made, but neither the services were improved, nor any action was taken.

However, the SBP showed firmness in case of excess withholding tax being detected by the banks.

“Banks are advised to immediately discontinue the practice of clubbing the cash and ATM transactions done on different dates into single posting date for determining the amount of withholding tax on such transactions,” said the SBP.

“The excess amount of withholding tax, if any, deducted from customers should be refunded to them,” said the SBP circular.

The SBP warned the banks of action if they failed to follow the instructions in this regard.

While the banks extract maximum from depositors, they never pass on benefits of record profits they earn. Instead their service charges have gone up and returns to depositors are still at the lowest ebb, remarked a bank customer.