Pakistan has decided that only non-filers of income tax returns will pay withholding tax on cash and non-cash banking transactions.
In a move aimed at encouraging compliant taxpayers, the government has taken a significant step by abolishing withholding tax on cash withdrawals from banks for filers of income tax returns. This progressive initiative is part of the Finance Supplementary (Second Amendment) Bill, 2019, which was presented on January 23, 2019, and promises to reshape the taxation landscape in the country.
The focal point of this legislative development is the proposed deletion of the withholding tax rate at 0.3 percent for filers, as outlined under Section 231A of the Income Tax Ordinance, 2001. This move is expected to provide a considerable relief for individuals and businesses that dutifully fulfill their tax obligations, allowing them to withdraw cash from banks without the burden of additional withholding taxes.
However, it’s important to note that the government has maintained a distinction between filers and non-filers in this tax policy. While filers enjoy the exemption from withholding tax on cash withdrawals, non-filers will continue to be subject to a withholding tax rate of 0.6 percent on cash withdrawals exceeding Rs50,000 in a day from the banking system.
Furthermore, non-filers will also be required to pay a similar 0.6 percent withholding tax on non-cash transactions, as stipulated under Section 236P of the Income Tax Ordinance, 2001. This dual approach by the government aims to incentivize individuals and businesses to become compliant taxpayers, with the prospect of reduced financial implications for those who adhere to their tax responsibilities.
Tax experts have lauded this initiative, highlighting its potential to spur a significant increase in the filing of income tax returns in the future. By creating a distinction between filers and non-filers and offering preferential treatment to the former, the government is sending a clear message about the importance of tax compliance.
The move is expected to have a positive impact on the overall tax culture in the country, as individuals and businesses are likely to view tax filing as a more favorable and rewarding practice. Encouraging a higher rate of income tax return submissions is not only beneficial for the government’s revenue collection efforts but also contributes to building a more transparent and accountable economic system.
Critics argue that such differentiations may create a two-tier system, potentially burdening non-filers with higher transaction costs and dissuading them from participating fully in the formal financial system. However, proponents of the policy believe that the benefits of encouraging tax compliance far outweigh the concerns, as a more robust and accountable tax system is essential for sustainable economic growth.
The government’s decision to eliminate withholding tax on cash withdrawals for filers is a bold step towards promoting a culture of tax compliance in the country. While challenges and debates may arise regarding the potential impact on non-filers, the overall objective of fostering a responsible and transparent tax environment is a crucial aspect of a progressive economic agenda. This move is anticipated to lay the foundation for a more robust and fair taxation system in Pakistan.
