In December 2024, Pakistan witnessed a staggering Rs 862 billion in bank withdrawals, highlighting a rising wave of uncertainty among account holders.
The outflow comes at a time when the government is poised to introduce stricter tax regulations aimed at targeting non-filers of income tax returns. This unprecedented withdrawal not only underscores the trepidation gripping the public but also raises alarm about the broader implications for the banking sector and the country’s economic outlook.
According to data from the State Bank of Pakistan (SBP), total bank deposits in Pakistan saw a notable decline of 2.77%, dropping from Rs 31.145 trillion in November 2024 to Rs 30.283 trillion by the end of December. This fall is indicative of a growing sense of financial caution among individuals and entities who fear being swept up in the government’s tax net. While a year-on-year comparison shows an 8.78% increase in deposits, the sharp month-on-month drop highlights an immediate loss of confidence as taxpayers brace for the government’s crackdown on non-filers.
The crux of the panic lies in the government’s newly introduced tax measures. On December 18, 2024, a bill was presented in the National Assembly that proposes severe restrictions on individuals with taxable income who have yet to file their tax returns. These measures, particularly the proposed addition of Section 114C to the Income Tax Ordinance of 2001, aim to curtail various transactions for non-filers, including the purchase of motor vehicles, the registration of immovable properties above specified values, and opening bank accounts. For those with sizable accounts, the ability to withdraw cash exceeding certain limits would also be curtailed, further straining trust in the financial system.
One of the primary drivers of this financial unease is the perception that these measures will severely restrict day-to-day financial activities for a significant portion of the population. Given that motor vehicles and property transactions often constitute major life milestones, non-filers are likely to feel the brunt of the restrictions in a way that disrupts their routine. For many, these measures signal a new phase of intrusive tax enforcement that could limit their financial autonomy. While the government’s intention is clear – to broaden the tax net and bring more people into the formal economy – the fear of overreach has caused many to consider pulling their funds from the banking system.
In addition to these policy changes, the recent cuts in the SBP’s benchmark interest rate from 22% to 13% have added to the unease. Lower profit rates for depositors, particularly in a time of economic instability, leave many questioning the utility of keeping funds in the bank. With inflation still high and returns on savings weakening, many are opting to withdraw their money in anticipation of both the tax restrictions and the diminishing appeal of traditional savings accounts.
Despite these withdrawals, the banking sector as a whole remains relatively stable, with deposits increasing by 8.78% year-on-year in December 2024 compared to the previous year. However, the massive outflows in December 2024 signify a critical inflection point, one that will require the financial sector to adapt quickly to shifting depositor behavior. Banks must now prepare for the long-term consequences of these policy changes, not just in terms of reduced deposits but also in terms of customer trust and confidence.
As the Federal Board of Revenue (FBR) finalizes its proposed restrictions, the government’s ability to strike a balance between increasing tax compliance and maintaining a stable financial system will be tested. The ripple effects of this decision will not only shape Pakistan’s economic outlook for 2025 but could also define the relationship between citizens and the state’s economic policies for years to come.