Myriads of taxes bleed savers out

| Updated:
June 22, 2021 2:14:03 p.m.

Various forms of taxation on bank deposits, even on principal, discourage savers from choosing the formal route of financial transactions.

The myriad of taxes also increases the cost of doing business.

The return on bank deposits, including fixed-term deposits, is negative if the inflation rate is adjusted to the interest rates. Banks now offer interest rates between 4.0 and 5.0 percent for fixed-term deposits. When it comes to savings accounts, bankers are often reluctant to mention the 2.0 percent interest rate. The inflation rate moves around 6.0 percent annually.

The government levies withholding tax on bank interest under the Income Tax Ordinance of 1984, Value Added Tax (VAT) on each of the service charges under the VAT and Surcharge Act of 2012, and excise duties under the Excise and Salt Act of 1944.

All provisions except two of the Consumption Tax and Salt Act were incorporated into the Value Added Tax Act in 1991. The remaining provisions are used to collect excise duties on bank balances and airline tickets.

The government refrained from abolishing the Excise Duty Act as it imposes a significant amount of tax on bank depositors.

By February of the current fiscal year, the tax office saw the highest growth in excise tax collection of 30.46 percent, adding to the overall growth in tax collection from the banking sector to 33.11 percent, according to NBR data.

According to the Statutory Order (SRO) of the National Board of Revenue (NBR), banks are required to deduct excise tax from any account balance, debit or credit of customers, regardless of savings, checking, loan and other accounts at any time of the year.

Companies said their business costs increased because they had to pay excise duties twice at the time of taking out a loan from banks.

The government kept the excise law in abbreviated form as it found that there was no value added to collect VAT in these two areas (bank deposits and airline tickets), a senior NBR sales tax official said.

He said small savers with up to Tk 0.1 million in bank deposits would be exempt from excise duty.

According to the Bangladesh Bank (BB), around 98 percent of bank accounts have deposits of up to Tk 1.0 million.

Currently, a consumption tax of Tk 150 on bank deposits over Tk 0.1 million to Tk 0.5 million and Tk 500 for deposits over Tk 0.5 million to Tk 1.0 million and Tk 3,000 for deposits over 1, Tk 0 million to Tk 10 million charged.

A consumption tax of Tk 15,000 is levied on bank deposits over Tk 10 million to Tk 50 million, while it is Tk 40,000 for deposits over Tk 50 million.

In other South Asian countries such as India, Pakistan and Sri Lanka, no such tax is levied on the main amount of bank depositors.

Bank depositors said they had to pay the tax several times a year while opening FDR for any term.

Any type of transfer of bank balances from one account to another is also subject to excise duty. Even the owners of state savings instruments have to pay excise tax twice – at the time of purchase and redemption.

Experts have found that the duty is regressive and discourages bank depositors.

Adeeb H Khan, chairman of the Tax Subcommittee of the Metropolitan Chamber of Commerce and Industry, views it as another tax under the excise banner.

Taxes should be linked to income, he said, adding that a bank balance shouldn't necessarily mean income.

It could just be the savings of people with little or no income, he explained.

"When we're trying to get more people and money into the banking system, this type of tax can discourage people," he said.

Syedul Huq Chowdhury, an owner in the Old City, said he had to pay excise taxes four times last year for taking out two loans from banks.

He said that because of the different types of taxes and also the interest rates, borrowing a business seems expensive.

Snehasish Barua, a member of the Institute of Chartered Accountants of Bangladesh (ICAB) and also a partner of Snehasish Mahmud and Co, said business costs are increasing due to the double excise duty on a loan. Taking into account revenue collection issues, he said the government could instruct banks and other financial institutions to deduct the tax once a year.

In the proposed budget for the coming financial year, the Minister of Finance made no changes to the excise tax structure.

Rowshon Ara, a housewife, opened a monthly earnings deposit (MED) with a reputable non-bank financial institution in November 2014, which was renewed annually until November 11, 2019.

On the latest due date, she submitted an application for the renewal of the MED with the function of quarterly payment of interest (QED).

"I had to pay excise duties twice to transfer deposits from one account to another," she said. Experts said the government is trying to popularize transactions through banking channels, but imposing such taxes would only deter people from depositing their hard-earned money into banks.

According to income tax law, every bank depositor has to pay withholding tax on the interest amount, regardless of whether he has taxable income of either 10 percent if he has a tax identification number (TIN) or 15 percent if he does not have a TIN.

The tax will be refunded if there is no taxable income as per the tax return filed with the NBR, while the taxpayer can adjust it with the actual tax payable.

Neither the marginalized group of people bother to obtain a reimbursement of withholding taxes paid against bank interest from the tax office, nor are taxpayers prepared to issue reimbursement checks taking into account their income target.

In addition, a VAT of 15 percent is levied on account management fees, loan processing and rescheduling fees, solvency certificates, etc.

With the growing trend of per capita income and the lack of adequate investment opportunities in physical infrastructure, the number of bank accounts with deposits of over Tk 10 million increased by 10,051 in 2020.

The number of bank accounts with a deposit of over Tk 10 million rose from 83,839 in December 2019 to 93,890 in December 2020.

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