Up­roar over levy on bank trans­ac­tions

The Pak Banker - - 4EDITORIAL - Af­shan Subohi

THE gov­ern­ment is not likely to com­pletely with­draw the levy on bank trans­ac­tions of non-fil­ers de­spite mount­ing pres­sure from trade and in­dus­try. It wishes to help the textile sec­tor, but its op­tions are lim­ited and in­volve high op­por­tu­nity cost. While the gov­ern­ment ap­peared ner­vous last week as in­di­ca­tions of a storm gath­er­ing on the hori­zon were too ob­vi­ous, many mem­bers of the rul­ing party's eco­nomic team were cau­tiously op­ti­mistic that they would suc­ceed in con­tain­ing the sit­u­a­tion with the help of a seg­ment of sup­port­ive busi­ness­men.

The gov­ern­ment is ex­pected to use the tried and tested pol­icy of car­rot and stick to han­dle the an­gry busi­ness­men. With marathon IMF re­view meet­ings in progress in Dubai, the gov­ern­ment can­not af­ford to go back on its firm com­mit­ment to broaden the tax net. If the is­sue of le­git­i­macy is set aside, the de­mand of the trad­ing com­mu­nity is pre­cise and clear. They are de­mand­ing a full and fi­nal with­drawal of any levy on bank trans­ac­tions by non-fil­ers.

Mean­while, the wish list of the textile in­dus­try is long and its de­mand to re­duce the cost of do­ing busi­ness vague. The in­dus­try could be over­stat­ing the in­ten­sity of the cri­sis, but there is a greater recog­ni­tion of their po­si­tion within gov­ern­ment cir­cles.

With marathon IMF re­view meet­ings in progress in Dubai, the gov­ern­ment can­not af­ford to go back on its firm com­mit­ment to broaden the tax net and nar­row the scale of sub­si­dies. This has left very lit­tle ne­go­ti­at­ing space for Is­lam­abad to ap­pease the busi­ness rep­re­sen­ta­tives in­vited by the fi­nance min­is­ter last week.

The meet­ing, par­tic­i­pants told this scribe, did not pacify all the de­fi­ant busi­ness­men, who now en­joy the sup­port of some op­po­si­tion par­ties. But it did weaken the po­si­tion of hawks who were ad­vo­cat­ing di­rect con­fronta­tion.

It would be pre­ma­ture to com­ment on the fi­nal out­come of the strike call by the textile in­dus­try, but the di­a­logue was said to have brought down tem­per­a­tures for now.

"The re­ac­tion of the trad­ing com­mu­nity was ex­pected but the con­duct of po­lit­i­cal par­ties en­dors­ing the protests by tax dodgers is as­ton­ish­ing and ex­pose their claims of spot­less cre­den­tials," com­mented Pri­vati­sa­tion Com­mis­sion Chair­man Mo­ham­mad Zubair, who re­turned from Dubai on Fri­day af­ter par­tic­i­pat­ing in some IMF re­view ses­sions. He re­ferred to the PTI in par­tic­u­lar, and added that "the worst part is that they are do­ing it know­ingly just for po­lit­i­cal point-scor­ing".

"The gov­ern­ment has a com­pas­sion­ate out­look to­wards the textile sec­tor, which in­deed is in trou­ble. Prime Min­is­ter Nawaz Sharif has di­rected the eco­nomic team to carve a pol­icy to help them as best as pos­si­ble." He said the sit­u­a­tion is ex­tremely dif­fi­cult and ready so­lu­tions are not avail­able. The best way out of the cur­rent imbroglio, in his view, would be a pol­icy of ' open­ness and re­spon­si­bil­ity shar­ing'.

"My sug­ges­tion would be to take the busi­ness lead­ers on board, share the lim­i­ta­tions and let the com­pet­ing in­ter­ests de­bate and sug­gest op­tions. If noth­ing else, it would build bridges and fa­cil­i­tate the PML-N and the busi­ness com­mu­nity to bet­ter un­der­stand each other's po­si­tions," he ar­gued.

The gov­ern­ment had im­posed a 0.6pc with­hold­ing tax on bank trans­ac­tions ex­ceed­ing Rs50,000 per day for non-fil­ers, ef­fec­tive from July 1. But un­der pres­sure from the traders' lobby, the rate was re­vised down to 0.3pc for three months to grant them time to file their tax re­turns.

How­ever, af­ter ini­tially gen­er­ally ac­cept­ing the pro­posal, many trade bod­ies have done an about-face, re­jected the agreed-upon deal and threat­ened to go on strikes in a bid to get the tax re­versed al­to­gether.

"We are not ready for the de­duc­tion from our daily bank trans­ac­tions, so we are left with no op­tion but to close our bank ac­counts and switch to non-bank­ing chan­nels. In many towns, com­mod­ity traders are us­ing hand­writ­ten re­ceipts that are con­sid­ered as good as le­gal ten­der and mak­ing fi­nal pay­ments in cash at a mu­tu­ally agreed time and place," said All Karachi Ta­jir It­te­had chair­man Atiq Mir.

"I do not ex­pect a pop­u­lar move­ment on the is­sue, but I don't think the gov­ern­ment can af­ford to let banks bleed dry of cash," he added.

Mean­while, the State Bank of Pak­istan dis­missed the traders' claims. In a writ­ten re­sponse, SBP spokesper­son Abid Qa­mar said: "We have not wit­nessed any un­usual de­cline in bank de­posits so far as an af­ter-ef­fect of the fis­cal mea­sures taken with re­spect to bank trans­ac­tions".

And the textile in­dus­try, which claims to have been dis­pro­por­tion­ately bur­dened with taxes, is seek­ing amend­ments in the eco­nomic pol­icy frame­work so that its stuck-up sales tax re­funds are set­tled; the gas in­fra­struc­ture de­vel­op­ment cess (which will hike the cost of run­ning cap­tive power plants of textile millers) is re­versed; a steady power sup­ply is en­sured; and the pol­icy of keep­ing the rupee ar­ti­fi­cially sta­ble (which is hurt­ing ex­porters) is dis­carded.

Aptma Chair­man S.M. Tan­veer said the in­dus­try has built its case of hard­ship by com­par­ing the busi­ness en­vi­ron­ment in Pak­istan with its re­gional com­peti­tors.

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