Increase in taxes leads to decline in banking transactions in Pakistan

In a recent development, there has been a big decline in banking transactions as more and more people have started to look out for out of bank settlements.

According to the sources, the annual report of State Bank of Pakistan also agrees with the fact. There has been a decline in deposit mobilization in the year 2015-16. On the other hand, the circulation of currency has achieved a high growth in the same period.

Regardless of an increase in the creation of money, deposit mobilization still seemed to decrease overall. Currency is now the new preference of the public.

Currency growth reaches peak

The currency circulation achieved the highest point in the year 2015-16. Due to this, more money is being printed but less money is coming back. Therefore, it is very clear from these facts that most of the transactions and money dealings are being done out of the banks. In other words, bank transfers have become inferior as compared to hard cash.

The level that currency growth reached in the year 2015-16 is 30.5%. A currency circulation level as high as this one was seen during the early days of Pakistan in the period of 1972-1973 when East Pakistan became Bangladesh.

Business community is vocal about the issue

The business circle has become very active because of the effects of this and has asked the finance ministers to lift the tax. Resources show that an SBP report states that:

“It is important to recall here that the business-sector deposits, which constitute nearly a third of total (non-government) bank deposits, are used primarily to facilitate their voluminous transactions. Therefore, a tax on these transactions over and above usual business levies (like income tax, sales tax, FED etc) is surely an added burden”

The withholding tax applied to these transactions was 0.6% and then was lowered to 0.4%.

Due to the tax applied on these transactions, the business community has seen a lot of problems. This is the main reason why they have turned to other methods for their transactions. Moreover, they are also abstaining from using direct transactions. The SBP report expresses that the notion of charging taxes on transactions was wrong. Due to this, bank deposits have seen a straight slope downwards.

Fiscal expansion in the year 2014-15 was 13.2% and corporate deposits were increased up to 9.4%. In the fiscal year 2015-16, the corporate deposits increased by an amount of 1.2% while fiscal expansions increased to 13.7%.

Source: Dawn / image: AbidSiddiqui

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