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Withdrawal tax: Bank costs to go up

Poornima Mohandas & Anita Bhoir in Mumbai | March 03, 2005 11:49 IST

Most of the bankers feel that the withdrawal tax proposal will not be passed in the Finance Bill. 

The uproar is loud enough and all and sundry expect the finance minister to either roll back the tax or raise the transaction limit to Rs 50,000-1,00,000.

Currently, it is proposed to be at the rate of 0.1 per cent for every cash withdrawal of over Rs 10,000 � that is Rs 10 for every Rs 10,000. 

"The administrative cost involved is almost prohibitive. The cost incurred will be highest in manually operated branches. It will also be high in standalone computerised branches," said a bank official on the condition of anonymity. 

The collection of this tax is a transaction in itself and will involve filling up of slips, record entry, tabulation of day-end records, and maintenance of the collected amount in a separate account till the bank remits it to the Central Board of Direct Taxes. 

There will be additional cost to banks at the ATM level. Says Aspy Engineer, vice president, retail banking, UTI Bank [Get Quote], "Banks will have to do a software upgradation at the switch level or at the core banking solution level in order to tax ATM withdrawals." 

 "Logistically it's a major challenge for banks. There will be additional technological, manpower and stationary investments for banks," said a managing director of a private sector bank.  

The tax may help curtail grey market purchases of cellphones and other gadgets without bills and payment of hard cash to builders. 

However, the levy will also hurt the common man. A small shop keeper withdrawing money to pay his employees or a salaried family man withdrawing money at the beginning of every month to take care of his household expenditure will also have to bear the tax burden. 

Then there are emergencies like hospitalisation where one needs cash as most of the hospitals do not entertain credit cards or cheques.

The threshold therefore may have to be raised in order to shield the genuine tax payers, pointed out bankers. 

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