Karachi: The enforcement of withholding tax on banking transactions hasn’t prevented the cash economy from flourishing, said State Bank of Pakistan in a report released on Thursday.
According to SBP, the imposition of withholding tax has had an opposite effect of contributing more to the increase of cash based transactions, instead of the intended reduction it was imposed for.
Finance Bill 2015 had enacted a withholding tax on non-filers of income tax returns at a rate of 0.6pc on all non-cash banking transactions, which was reduced to 0.4pc after vociferous opposition by the business and trader’s community.
The report highlighted that WHT on non-cash banking transactions failed to garner any beneficiaries as revenue collections and tax filing remained stagnant. On the contrary, it led to a rise in currency circulation and fall in private banking deposits.
Currency circulate rose by 21.5pc between July 2015-June 2017 compared to an average rise of 14pc over the course of last eleven years, before the imposition of WHT on banking transactions in 2015.
Private business deposits as a share of total deposits declined from 27.6pc to 25pc after the imposition of WHT on banking transactions.
