Tax on cash withdrawal is a form of advance taxation and is a strategy to keep tax evasion in check. This mode of tax collection is also called the presumptive tax regime. Globally, 3 countries are known to consider this approach namely, Pakistan, India and Greece.
Greece - Cashpoint
During 2015, when Greek economy was on the verge of bankruptcy, millions of panicked citizens completely cleared their accounts - by pulling more than €28 billion out of banks and pushing the total cash revenue held in the country's financial institutions to a 10-year low. To combat this Greek banks proposed taxing cash withdrawals and requiring use of debit and credit cards for all transaction in order to prevent tax evasion. A surcharge for all cashpoint withdrawals was introduced approximately amounting to €1 for every €1,000 transaction. It was expected that it won't impact day-to-day withdrawals and it will deter citizens from clearing out their bank accounts. Ministers of the Athens government hoped the move could raise as much as €180 million, which would have helped the country's the then debt conditions. As per bank officials, cash was easy to funnel into the underground economy, which cost the state an estimated loss of 15 billion euros a year and it would stop if there were no cash. Greece declared bankruptcy in 2015.
Pakistan - Withholding Tax (per section 231A)
The section also defines the group of people who are exempted from this tax. The current rate of the withholding tax is 0% for Tax filers and 0.6% for Non Tax Filer . Apparently the purpose of this tax is to motivate people to file there Tax returns but as Pakistan is a Cash dominant economy, government is able to earn a huge amount by this. the rate of the withholding tax is 0.6% for non tax filers as per February 2020. In budget 2014-15 withholding tax rate was proposed to be increased further 0.2%, thereby making it a total 0.5% per transaction for transactions above Rs.50,000.
During 2005-2008, the UPA led government of India imposed tax on withdrawals of more than Rs 50,000.00 from current accounts for detection of unaccounted money in the absence of alternative methods. This tax was applicable only on cash and not on payment by cheques. Jaswant Singh, a former BJP leader criticized this taxation stating this could cause inconvenience to people. This criticism was rejected by the then finance ministerP Chidambaram, who later passed the bill to withdraw this form of taxation in 2009. During 2014 elections, BJP while preparing the vision document named India Vision 2025, under the helmsmanship of former party President Nitin Gadkari stated they were looking forward to bring tax reforms. Economic think-tank Arthakranti during 2014 recommended the BJP led government to abolish the present taxation mechanism and replace it with the Banking Transaction Tax thereby charging a 2-4% of transaction tax on every form of transaction including electronic and cheque payments. Economic times criticized BTT stating it was "regressive and iniquitous" and it "could push India further back" citing reasons of a parallel economy where the poor and the rich will have to pay the equivalent amount of taxes.
