A tussle between the government and the business community is going on on the issue of withholding tax on bank transactions. The problem is not in a decision but in the method of its implementation. Despite having all the resources under its control such as policymakers, technocrats and more precisely a skilled manpower, the government often opts for “royal” decrees to ensure implementation of its policies. There are no two opinions in the fact that the tax-to-GDP ratio in Pakistan is the lowest in the region. However, achieving the desired goals by issuing decrees is not an option. You cannot implement a decision across the board without going through its pros and cons.
According to an official of the National Savings Scheme, the government decision to deduct withholding tax on saving schemes is implemented, but the decision itself is unfortunate. The small saving schemes are specifically designed for small investors, including pensioners, which have to be tax-free income, but no one in parliament opposed the finance bill envisaging the withholding tax. The small investors have no voice anywhere and they have to bear the brunt of flawed government policies silently. The government-sponsored saving schemes are the only option for the small investors as thousands of people have been robbed of their life-long savings in financial scams. But taxing the pensioners and widows is not justifiable from any angle.
What the government has to do is to revise the operating manuals of its departments. The tax to GDP ratio is low, but it needs a mechanism to get the desired results. According to the Finance Ministry, the tax to Gross ratio has increased to 15.4 percent in 2014-15 from 8.13 during the PPP regime. The government has imposed Gas Infrastructure Development Cess, Natural Gas Development Surcharge and Petroleum Levy and had earned Rs 274 billion last year which counted 8.7 percent of the total revenue of Rs 3.129 trillion. The government has envisaged Rs 310 billion revenue in the current fiscal year which is 9 percent of the total projected revenued for the year.
The current financial situation of the country indicates that the government is heavily relying on the revenue generated through withholding tax. According to the news reports, around 70 percent of all direct tax collections is made through withholding tax, increasing the direct tax collections from Rs 779 billion in 2012-13 to Rs 1.1 trillion in 2014-15. The problem is that the government only wants to fix those who are already in the tax net or have bank accounts. It never happens in the world that a decision is implemented without giving a consideration to exceptions which are always there as a reality.