KARACHI: The Federal Board of Revenue (FBR) has once again extend the application of 0.4 percent withholding tax on non-cash banking transactions made by non-filers of income tax returns for further three months up to September 30, 2017.

Through Finance Act, 2015 the government introduced Section 236P to Income Tax Ordinance, 2001 and imposed 0.6 percent withholding tax on non-filers on non-cash banking transactions of above Rs50,000 per day.

However, on the agitation from the traders, the government reduced the withholding tax rate to 0.3 percent on July 11, 2015. The rate was revised to 0.4 percent in March 2016. Currently, a lower rate of 0.4 percent is applicable in the light of a decision by the Economic Coordination Committee (ECC).

According to a report, the State Bank had asked the government to reconsider the issue of withholding tax on banking transactions for non-filers, especially for vulnerable groups of population.

It has specifically argued that this levy of 0.4 percent on non-filers and 0.3 percent on filers adversely affects the deposit base of banks and this was a matter of concern because Pakistan has one of the lowest saving rates as a percentage of GDP among regional countries and imposition of advance tax on banking transactions is further discouraging the public from using banking channels for their financial transactions.

Additionally, withholding tax on banking transactions is creating problems for the low income groups such as pensioners, retirees, farmers, students, etc, who fall below the taxable threshold limit yet they are charged the higher non-filer rate. Also, the salary of an employee is subject to deduction of tax at source and tax applicable on the entire salary is deducted by the employer for deposit in the government treasury. At the time of withdrawal of salary, tax is again imposed which amounts to double taxation and is grossly unfair. Considering all the factors, SBP has proposed to remove section 236 and if that is not possible, exemption should be provided to students, widows, pensioners, salaried class and farmers.