KARACHI, Oct 24: The State Bank has not withdrawn its circular of June 30, 2003 that made it compulsory for the banks and DFIs to report to the CBR details of the accounts the profits on which exceed Rs10,000. This has turned millions of bank account holders panicky across Pakistan. (Till December 2002 total number of bank accounts was 28.6 million). Senior bankers say if the circular is not taken back this may force many account holders to close their accounts.
A senior official of the State Bank told Dawn the central bank could not withdraw the circular because it was issued on the instruction of the Ministry of Finance. And a Ministry of Finance official reached in Islamabad on telephone said the ministry had to issue the instruction because the IMF wanted so. “This is one of the many things we are doing to remain on track with the IMF programme,” the official conceded. He said not only the trade bodies had approached the ministry, demanding withdrawal of this circular, but the State Bank had also informed of the feedback it had received. “We know people want the State Bank withdraw this circular and the SBP has made it known to us but the problem is the circular cannot be withdrawn unless we talk it over with the IMF,” he disclosed.
The argument that the policy makers forward in favour of this action is that reporting of details of accounts to the CBR will help in reaching out to new potential taxpayers and enable it to see how many existing taxpayers are not fully meeting their tax obligations. The IMF wants the CBR to increase revenue collection so that Pakistan can bring down its fiscal deficit to the desired levels.
But the Fund managers believe the tax collecting body cannot produce the desired results if it is denied access to key information. The Fund officials as well as policy makers also believe that allowing the CBR access to information direct from the banks would be more handy in widening the tax-net rather than relying on taxmen to collect information on their own.
Federation of Pakistan Chambers of Commerce and Industry president Riaz Tata told Dawn that the FPCCI had raised this issue with Finance Minister Shaukat Aziz in July and he had promised that the circular would be withdrawn. “We have also made a written representation to the State Bank and the Ministry of Finance and are waiting for their response,” he said when asked what the FPCCI is doing. Mr Tata said if the circular was not taken back it would discourage all bank account holders, including the businessmen. He said the FPCCI had voiced its concern over this issue at various occasions and he himself had spoken “to top officials concerned” half a dozen times.
The SBP had asked banks and development finance institutions on June 30 to report directly to the Central Board of Revenue details of the accounts on which they were paying annual return of more than Rs10,000. The central bank had set September 30, 2003 as the deadline for reporting to the CBR the required details of the accounts on which more than Rs10,000 profits were paid or declared by June 30.
The banks were asked to supply to the CBR (i) the name of the account (ii) the address of the account holder (iii) NTN/NIC number and (iv) the amount of profit or return paid on the account.
Senior bankers said their account holders were just unwilling to reveal their NTNs (national tax numbers) — particularly when told that this information is to be supplied to the CBR. Senior bankers say head offices of all banks and DFIs got very poor response from their branches in obtaining the required information. “Our branch managers tell us that the account holders have simply refused to give their NTNs in particular and other information in general,” said head of operations at a large local bank. Senior bankers say the September 30 deadline slipped by without many banks and DFIs providing the required information to the CBR. They say the deadline was extended unofficially to October 15, but not all banks were able to provide the required information to the CBR even till this date.
The condition imposed on the banks and DFIs to report to the CBR the details of the accounts earning more than Rs10,000 profit has created a lot of panic among the savers. Dawn offices have been receiving phone calls ever since the circular was issued from bank account holders who insist that if the circular is not withdrawn people will be forced to shift fixed term deposits into current account deposits that do not earn any profit.
Bankers say that in some cases people may even close their bank accounts instead of getting their details reported to the CBR. “We fear withdrawals by panicky savers,” commented treasurer of a large local bank. The reason why people are opposing the idea of reporting account holders details to the CBR is very obvious. Tax machinery in Pakistan is focussed more on squeezing those who are already taxed instead of trying to bring those into tax net that are not paying any taxes at all. People say if the CBR really wanted to launch a crackdown on tax evaders — and if they think they need the bank account details for this purpose — then they should focus exclusively on those accounts that earn large sums of profit.
That the size of the accounts on which Rs10,000 profit is paid annually is relatively small is a common knowledge. Even in the current low interest rates environment the weighted average rate of return on all bank deposits is close to two per cent. This means that people having only half-a-million rupees in one-year fixed deposits are getting an annual return of Rs10,000. People say if the CBR believes that tax evaders fall in the income group that invests half-a-million rupees in one-year fixed deposits it is seriously mistaken. They say the reporting requirement will only scare away the small savers from the banking system, forcing them to make their fortunes a part of the undocumented economy.
At the end of December 2002, total bank deposits were in excess of Rs1,500 billion, of which Rs817 billion in saving accounts and the rest in current accounts and fixed term deposits.