Will truce between Pak govt, businesses on WHT hold?
A vendor arranges an overhead display of menswear clothing at a market in Karachi. Pakistan's annual tax collection is low as a large majority of business community do not pay their taxes.
The nationwide protest was sparked by the government's decision to levy of a 0.6 per cent withholding tax (WHT) on any cash withdrawals, or transactions, of Rs50,000 or more, in any day by the non-filers of Income Tax returns.
Pakistan's pro-business government of Prime Minister Nawaz Sharif has just come out of its self-created crisis after turning most of the business community - and the public a large - against itself. But, will the ensuring truce hold?
The nationwide protest was sparked by the government's decision to levy of a 0.6 per cent withholding tax (WHT) on any cash withdrawals, or transactions, of Rs50,000 or more, in any day by the non-filers of Income Tax returns. Those who regularly file their Income Tax returns are not hit by this WHT. The protesting businesses shuttered down and Finance Minister Ishaq Dar was forced to cut it to half - 0.3 per cent - for the period July 1 to September 30, the first Quarter (Q1) of FY-16. Dar on Wednesday met the business leadership and announced the cut.
Mian Mohmmad Idrees, president of the Federation of Pakistan Chambers of Commerce and Industry (FPCC&I) represented the business community in talks with Dar.
The key demand was annulment of the Federal Bureau's right to intrude into the banks, because the companies and individuals did not wish their accounts, transactions, business volumes and profits to be investigated. The 0.6 per cent, and now 0.3 per cent of the encashment was not the real issue. It mans the protest at some stage will remerge. Is it a temporary truce saving Dar' face, and saving the bank clients for being dubbed as "black businessmen"?
Dar said: "The reduced rate of WHT will expire on September 30, and from October 1 the original rate off 0.6 per cent will be charged."
Be it Dar or the businessmen the latest wrongs looked even more surprising in the holy month of Ramadan.
One, contrary to the claims by the government followed by State Bank of Pakistan (SBP), the central bank, prices especially those of food are skyrocketing. The government claims that inflation has been beaten back and halved from around an annual nine per cent to 4.5 per cent in the last few months. It proved false as food prices, among others, are shot trough the roof.
Two, desperate to fill at least part of the gnawing budgetary gap, Dar imposed WHT, which will be refunded if an Income Tax return is filed. Will it not opening one more window for highly corrupt Income Tax Department officials to take bribes?
The fact is that the common man in Pakistan gets beaten up on both ends, by the tax-levying government and the businesses, which gobbles up a major part of the indirect taxes like Sales Tax, which the consumer pays, but the government does not receive.
The overall annual tax collection is low because large majority of the business community either do not pay their taxes or pay very little, because they are not in the tax-net. Dar was trying to widen the tax net by looking into the bank accounts.
The bitter truth is "more than 60 per cent of the Pakistani economy is underground, undocumented and pays no tax." This undocumented, tax-free economy is expanding fast. It is the second biggest or perhaps the largest employer and job provider in a country where unemployment is expanding fast. On the other hand, the documented economy is in a state of slowdown.
Tax evasion apart, the huge undocumented or black economy operation is producing everything from needles to diamond necklaces, electric fans to refrigerators and big-screen TV-sets. Driving from Karachi to Peshawar, the industrialists may not pay their taxes and contribute much cash to the national exchequer but they are providing the consumers what they need. Otherwise smuggling will rise sharply to replace these products.
Tariq Bajwa, Chairmin Federal Board of Revenues (FBR) said about the WHT: "It has been imposed only on non-filers of tax returns. Our focus is only on non-filers."
Shahid Hussain Asad, Member Inland Revenue in FBR said: "Banking transactions by undocumented persons protect black money in the economy. Most of the black money is invested into properties and payments are made through pay orders or demand drafts."
Khalid Usman, Chairman Progressive Group in Lahore Chamber of Commerce and Industry, said: "Taxing the banking transactions is beyond any understanding. It's a cruelty."
Farid Khan, head of Allied Bank of Pakistan Asset Management, said: "Already we are hearing complaints from people who have seen deductions from the accounts once they placed some money with us."
Among big companies who pays? A recent report by Islamabad's Sustainable Development Policy Institute (SDPI), said: "Only 21 per cent of registered companies in Pakistan paid income tax in FY-13. Their total contribution was Rs351 billion, which is a very large amount, considering only a fifth of registered companies contributed to it."
The government has to make a choice, tax or no tax. Consumer wrath or satisfaction. Vote for Pakistan Muslim League (Nawaz) or loss of power. Dar's decisions and public reaction should be read along these lines. The election bells are tolling, and Opposition leaders are long across the shoulder.
Views expressed by the author are his own and do not reflect the newspaper's policy.