All banking transactions for non-filers: The withholding tax saga continues

ISLAMABAD: Power politics within the ruling party may ruin the move to control tax evasion, as traders supported by Punjab government have backed out from the agreement they signed earlier this month that would bring them under the tax net in return of seeking major concessions.

Daylong talks between representatives of traders and the federal government on Monday collapsed after the traders refused to budge from their demand of complete withdrawal of 0.3% withholding tax that the government has imposed on every banking sector transaction valuing over Rs50,000 and conducted by a non-filer.

The 0.3% tax is a catch-22 situation for traders. If they remain outside the net, they will have to pay 0.3% on every banking sector transaction. If they file return to avoid the levy, they will have to declare assets and actual sales, which will push them in higher income tax slabs and their sales will also be subject to standard 17% sales tax.

The traders usually do not disclose their actual sales and incomes and operate Benami accounts to hide their sales.

Deadlock

The negotiations to resolve the dispute took place at two fronts. The traders locked horns with the tax authorities in the Federal Board of Revenue (FBR) Headquarter while the top leadership of the PML-N was also engaged to find a solution to the emerging problem that has created rifts within the ruling party.

The forces led by Finance Minister Ishaq Dar, who did not attend the meeting, wanted to use this opportunity to broaden the tax base and plug loopholes that are exploited by those who are in the tax net but are hiding their earnings and assets.

On the other hand, there are forces, apparently backed by Punjab Chief Minister Shahbaz Sharif, who fear that any such move would annoy the traders, denting the basin of the PML-N support in Punjab.

The sources said Punjab government was covertly supporting the traders in their strike call. One group that signed the agreement on July 9 has now given strike call for August 1 while the other group has given August 5 strike call.

Dar on Monday did not respond to the question whether there were cracks within the ruling party over the withholding tax issue.

“We want to facilitate the business community and at the same time we also want to enhance our tax net for the socio economic prosperity of the country,” the finance minister remarked.

Dar hopped that the representatives of traders and chambers of commerce and industries from across the country would attend Tuesday’s meeting and a solution will be found to the issue.

Despite goodwill gestures expressed by Dar, apparently there was no progress. After the federal government refused to accept the demand to withdraw the levy, Naeem Mir, the General Secretary of All Pakistan Anjuman Tajaran, announced that the traders would boycott Tuesday’s negotiations and observe strike on August 1.

Mir was one of fourteen leaders of the traders and the business community who had signed the agreement on July 9 in which they had agreed to come into the tax net after government accepted their demand to tax them under a special regime.

FBR’s involvement

The FBR is also to be blamed for traders’ retreat, as it did not make any progress on two critical aspects of the July 9 agreement, special turnover tax rates and sector specific minimum retail sale price.

Through the same agreement, the government had halved the withholding tax rate from 0.6% to 0.3% being charged on all banking transaction valuing over Rs50,000 by non-filers.

The July 9 agreement had been dubbed as a landmark achievement, which provided face saving to both traders and the federal government.

Mir proposed a three-year National Tax Reforms Programme. He proposed to link the increase in turnover volume with an amnesty scheme that will allow them within their black money over a period of three years. Mir proposed that if they show 100% increase in sales, the FBR in return should allow them to whiten their assets up to five times of the declared value of sales. “Fixed tax should be imposed on traders instead of charging them in a normal income tax regime.”