Pakistan - Business Community Striking Back - 0.3 percent tax

The business community is still on the warpath over the government’s measure to charge 0.3 percent tax on every banking sector transaction of above Rs 50,000. With markets in main cities starting to look like ghost towns due to widespread strikes, the main point to ponder over is whether this will do any good to the business community.

The tax applies to everyone, not just traders, and the Rs 50,000 amount not a high enough amount to make the tax progressive. The tax is a withholding tax, which means it can be reimbursed if income papers and tax returns are filed. However, the process to file taxes, to pay-now-get-reimbursed-later is quite cumbersome, unless tax authorities make the process easier.

On the other hand, should the business community have not already filed tax papers - something that is necessary and legally required? Transactions worth million happen in bazaars everyday, with there being no record of the transaction, except innocuous bank transfers. Do the traders not want to pay taxes? Is it really wise to let most of the economic activity in Pakistan remain informal?

This decision to extend the scope of the banking transaction tax was made to punish non-filers and encourage them to start filing their tax returns. However many parties have also joined the protests, including PTI, calling it the ‘government’s drone attack on national economy’. The to the rhetoric of poor masses being pushed towards absolute poverty is a default setting for most opposition. But sometimes, it is more a matter of pressuring people to follow the law, even if it antagonises them. As a nation we have been demanding better health and education services for decades, when our attitude towards paying taxes is abysmal. The tax, at 0.3 percent of Rs 50,000 comes to Rs 150. This may seem like a small charge when the transaction is made once a month, say, for salary. But when transactions this large are being made on a daily bases by traders the amount piles up. The outcry betrays the informal and unrecorded nature of most business in Pakistan, as well as the sheer amount of untaxed money flowing through the economy.

It has been estimated that this tax will generate Rs 35 billion in the new fiscal year. This is a good amount to start with, but the government is not clean of blame yet. Decades of lethargic planning, and the economic scandals of top leadership inspire no desire in the masses to pay taxes. There has been no effort to enhance social services, nor make them more efficient. For most people Rs 35 billion generated by taxes means Rs 35 billion lost to corruption and debt payments. Why should they give their money so willingly when they are not sure of the benefits? Because it is the legal thing to do. This reason many not seem enough, but it must suffice for now.