For every action, there is an equal and opposite reaction. If action is imprudent, the reaction will also be imprudent and that is the punch the government policy-makers are going to receive after imposition of withholding tax on the bank transactions. The government has taken a right decision to tax everyone who owns a taxable income, but it is trying to ensure collections in a wrong manner. The policy itself has various lacunae whereas the lower tax collection staff is always up in the arm to grab any small business owner by the collar. The result is, the taxpayers have no regard, no acceptance at any official forum and is always treated as suspected tax evader. The government has slapped 0.3 percent withholding tax on transactions more than Rs 50,000. This is too low slab for small businessmen who are already fighting a war of their survival. According to the World Bank report, Pakistan stands at 128th in ease of doing business rank. The problem is not with the businessmen, but with the government functionaries who want a lion share of an income without investment and without realizing the financial condition of the business owner. This situation leads to capital flight. Pakistani businessmen are welcome all over the world, especially in Dubai and Malaysia.
According to newspaper reports, the monthly transactions of commercial banks operating in the commercial markets of the country have fallen by 87.5 percent after the imposition of the withholding tax. The small traders have started avoiding banks and are doing business deals in cash or plain receipts to avoid deduction of taxes on their daily business transactions. The bank transactions in a single market of Lahore has reduced to Rs 50 million from Rs 400 million in a month after the imposition of the tax. The situation is not different in other markets of the country. Besides, the traders have also started withdrawing their deposits and stopped issuing banking instruments for dealing with buyers and sellers. It is unfortunate that the government itself pushes people to opt for wrong methods. The latest step seems a little effort on the part of the government to wrap up the banking system in the country.
The local and foreign banks have taken notice of the situation, but unable to persuade traders and businessmen to use financial channels. The traders fear that the payment of withholding tax will land them in a trouble zone after three months when they will be asked to submit turnover tax. The finance ministry needs to do some homework before implementing any unfriendly policy and should avoid reviving the Sikhashahi regime.
