Banks transactions, deposits declining
Commercial banks have started feeling the heat of withholding tax of 0.3 percent on the transaction of more than Rs 50,000 as their customers are rapidly switching to various alternate ways of money transfer for business and personal needs depicting decline in banks deposits.
According to the central bank, the banks deposits has decreased by Rs 34.215 billion in July which was the first month of the introduction of tax which was earlier deducted at 0.6 percent from non-filer.
The overall deposits of scheduled bank decreased to Rs 9.106 trillion in July as compared to Rs 9.141 trillion in June. This decline was reported after seven month since December 2014 as overall value continued to increase during this period.
On the other hand, bankers said banks customers from categories of individual, group corporate and SMEs have decreased the use of transfer of money within the banking channel impacting their decline of the deposits.
They said the various groups have started Hawala and Hundi within the sphere of different cities to continue their trading while avoiding withholding tax at their level best.
These Hawala and Hundi transactions are normally done through "Parchi" system in which a guarantor charge minimal amount and meets financial transaction from their own pocket. Furthermore, depositors having savings in bank accounts are now converting their investment from Rupees to Dollars but avoiding any currency in account from preventing themselves cutting tax. This will also spike demand of Dollars in interbank market depreciating Rupees value against Dollar at 104.
Small traders representative said traders are withdrawing their money from banks whereas avoiding depositing in their account to do business. This transaction was done within the cities and commercial areas in different sectors as the new system is getting emerged very rapidly in parallel with banking system.
They have started campaign to weaken banking system to force government withdraw this tax, hence the outflow of Rs 200 billion were made from banks so far.