KARACHI: Elimination of tax on transactions and high interest rates have made banking system a heaven for investment.
Pakistan’s banking deposits have grown to historic high level of Rs22.92 trillion by February 2023. The deposits of the banking system registered phenomenal growth of over 15 per cent to Rs22.92 trillion by end of February 2023 when compared with Rs19.91 trillion by end of February 2022.
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Previously, the highest level of deposits of the banking system was seen in September 2022.
Banking experts said that high interest rates have made investment in banking system very attractive.
The SBP in its latest monetary policy announcement on March 02, 2023 aggressively increased the benchmark policy rate by 300 basis points to 20 per cent.
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It is interesting to note that the banking deposits are increasing at a phenomenal pace. On the other hand, the saving schemes recorded a decline.
According to Central Directorate of National Savings (CDNS) the total investment in various saving schemes has dropped by 13 per cent to Rs3.38 trillion by end of January 2023 when compared with Rs3.89 trillion a year ago.
The experts said that the rise in banking deposits may be elimination of withholding tax on banking transactions.
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Through Finance Act, 2021 the government withdrew the tax on cash withdrawal from banking system.
Federal Board of Revenue (FBR) was empowered to collect withholding tax on cash withdrawal under Section 231 A of the Income Tax Ordinance, 2001 till June 30, 2021. Under this provision banks were deducting withholding tax on behalf of the FBR if the payment of cash withdrawal, or the sum total of the payments of cash withdrawal in a day, exceeded Rs50,000.
Similarly, the government also eliminated a provision of advance tax on banking transactions otherwise than through cash through Finance Act, 2021.
Under Section 236P of the Income Tax Ordinance, 2001, every banking company was required to collect advance tax from a person whose name was not appearing in the active taxpayers list at the time of sale of any instrument, including demand draft, pay order, special deposit receipt, cash deposit receipt, short term deposit receipt, call deposit receipt, rupee traveler’s cheque etc.
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Due to such attractive environment salaried persons have parked an amount of Rs3.02 trillion in the banking system by end of February 2023.
The deposits of salaried persons increased by around 7.5 per cent when compared with Rs2.81 trillion a year ago i.e. by end of February 2022.
The attractive rate of return in the banking system also encouraged the self-employed persons to make huge deposits. The deposits of self-employed persons recorded an increase of 14.54 per cent to Rs4.41 trillion by end of February 2023 when compared with Rs3.85 trillion a year ago.
Meanwhile, the deposits of wholesale and retailers recorded 27 per cent increase to Rs830 billion by end of February 2023 when compared with Rs653 billion a year ago.
