Internews/Islamabad

Has the withholding tax on banking transactions encouraged ordinary people in Pakistan to reduce the use of banking channels in everyday life? The truth seems to have lost in the cacophony of the marketplace: traders insist the withholding tax is pushing people away from banks while most independent economists say the hype around the issue is artificial and will be short-lived.
With the imposition of 0.3% withholding tax on banking transactions worth more than Rs50,000 in a single day by non-filers, traders warned of a steep decline in banking transactions, decreased deposits and an overall reduction in the use of formal payment instruments July onwards.
To support their argument, traders point to data from July that shows private businesses’ deposits decreased by 5.25%, or Rs131.8bn, in just one month. However, economists are quick to highlight that the sharp decline in July was perfectly in line with the last five-year trend, which shows deposits always post a month-on-month decrease in the first month of every fiscal year.
So what exactly is the impact of the withholding tax on banking transactions of more than Rs50, 000?
Has the public reduced its use of cheques and pay orders after July 1 to avoid the additional costs?
Perhaps the answer to this question lies buried in a 260-page document titled ‘The Statistical Bulletin’ that the State Bank of Pakistan (SBP) released yesterday.
In a section called Clearing House Statistics, the SBP gives a breakdown of the amount of money – and the number of cheques – that 16 of its country-wide clearing houses process every month.
Clearing houses tally up all cheques and bills received from banks every day and come up with net balances that need to be paid in cash. In other words, SBP’s clearing data incorporates every single cheque written and deposited into the banking system across Pakistan.
According to the latest Statistical Bulletin, there was a substantial decline in the number of cheques presented for clearing in July – the month when the withholding tax on banking transactions became effective.
The total number of cheques cleared by the SBP’s clearing houses was 4.5mn in July, down 28.7% from 6.3mn cheques cleared in the preceding month. As for the amount of money processed via those cheques, the month-on-month decline clocked up at 30.8% in July.