Govt mulling tax on cash withdrawals, banking transactions
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The Government of Pakistan has invited International Monetary Fund (IMF) for talks to address all contentious issues, including implementing a market-based exchange rate, as it considered slapping taxes on cash withdrawals and other banking transactions
According to reports, the new planned discussion measures include further increasing the withholding tax rates on the sale and purchase of properties as part of the mini-budget.
Sources said “The finance secretary has requested the IMF to send its mission to Pakistan as early as next week and shown the country’s desire to negotiate on all the disputed issues. The discussions with the IMF would take place in light of the matters discussed on the sidelines of the recent Geneva conference.”
It was expected that the government would at least make a formal announcement about its intention to revive the IMF programme very soon.
During the second meeting chaired by PM Shehbaz Sharif in Islamabad on Thursday with focus on economic issues, the Power Division and Federal Board of Revenue (FBR) presented revised plans to the premier for taking measures to restore the global lender’s programme.
It was decided that the government would show flexibility but at this stage, the final position would not be shared with the IMF, the sources sadi.
Pakistan’s external sector position has become precarious with only $4.4 billion reserves left in its coffers. There is also a realisation on the part of the government that abandoning the IMF route four months ago was a mistake and now an attempt will be made to revive the programme.
However, this realisation came only after foreign nations refused a bailout to Pakistan without the IMF umbrella. All the international creditors have advised the government to take the IMF path.
However, in the past, the global lender refused to send its mission to the country until the government took concrete corrective measures. Now, it has been agreed that about six to eight difficult steps will be taken including implementing a flexible exchange rate and withdrawing sales tax exemptions available on imports and local sales.
However, it is not clear whether or not the IMF will send its mission to Pakistan without first observing the concrete measures taken by the government to restore macroeconomic stability.
According to a senior official, a roadmap had been agreed and in due course, it would be shared with the IMF.
There has been no final decision on the quantum of the mini-budget and the increase in electricity prices, as these matters will be decided during negotiations.
The IMF has demanded that Pakistan should implement a market-based exchange rate; free control over imports; withdrawal of tax exemptions on goods it brought into the country, exports and local supplies; and an increase in taxes as well as electricity and gas prices.
It is unlikely that the IMF will come to Pakistan without having anything concrete in hand.
A cabinet member said the country now had zero credibility and that was a matter of concern for the government. Besides, the cabinet member added it was also a reason that the IMF was seeking measures in advance.
The sources said the FBR had proposed to reintroduce the withholding tax on cash withdrawals from banks and their transactions. Both these taxes had been abolished through the Finance Act of 2021 as part of a loan condition by the World Bank.
These taxes had led to reduction in the banking deposits, as people were reluctant to place their savings in them.
The deleted section 231A stated: “Every banking company shall deduct tax at, if the payment for cash withdrawal, or the sum total of the payments for cash withdrawal in a day, exceeds Rs50,000.”
Similarly, the deleted section 231AA read that every banking company, non-banking financial institution, exchange company or any authorised dealer of foreign exchange shall collect advance tax at the time of sale against cash of any instrument, including demand drafts, pay orders, call deposit receipts, special term deposits, special drawing right, real time clearing, or any other instrument of bearer nature or on receipt of cash on cancellation of any of these instruments.
According to another proposal, the government wanted to increase the withholding tax rates on the sale and purchase of properties -- the second time in the past seven months.
During the first half of the fiscal year, there was a 319% increase in the collection of the withholding tax on sale and transfer of the properties.
The FBR received Rs33.1 billion on the sale of properties during the July-December period of the current financial year. However, the collection on account of purchase of properties dipped by 2% to Rs40.5 billion, indicating that people were not ready to invest because of the prevailing crisis.