Pakistan's cotton ginners have asked the government to immediately withdraw the 0.6 per cent withholding tax (WHT) on all banking transactions for non-filers as it would discourage banking transactions, promote non-banking and cash transactions and would lead to harmful consequences for the economy.

An adjustable income tax at 0.6 per cent has been imposed on all banking transactions of over Rs 50,000 in a day for non-filers in a bid to compel them to become filers. However, there is apprehension this decision would lead to many complications in the economy as it would cause a drop in bank deposits, promote the culture of cash transactions, affect the profit margins of taxpaying businessmen and enhance turnover tax for filers.

Ginners say the WHT could become counter-productive as it would further give incentives to non-filers to conduct cash transactions and promote the informal economy in the country. The imposition of this tax would also give rise to inflation as non-filers would pass its burden to the common man who would pay high prices on purchases.

Another objection is that the levy would affect the objective of financial inclusion. Since the government was already charging 0.3 per cent withholding tax from banks on transactions of Rs 50,000, the imposition of 0.6 per cent tax on non-filers would push many businessmen towards the informal economy. Ginners say the government should have taken the business community on board before imposing the new tax.