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2020-01-12 12:07:56 BdST

Shrinking returns hurt bank depositors' interest


The return on depositors' money in banks has been shrinking gradually, mainly due to regulatory and fiscal measures.

A bank depositor receives a minuscule slice of profits or a negative return after deduction of source tax on interest, excise duty on the principal amount every year and other forms of charges and fees realised by the banks.

Although the National Board of Revenue (NBR) instructed the banks to collect excise duty once in a financial year, a bank depositor has to pay it twice for fixed deposit rate, or FDR, with one-year tenure.

Bank depositors said they are getting negative returns if the rate of inflation is taken into account.

For example, a single-year FDR opened on July 1, 2019 will get matured on July 1, 2020.

In that case, the depositor has to pay excise duty twice for the two financial years.

Also, depositors will have to pay the excise duty twice in case of shifting their deposits from one bank to another.

Rafiqul Huq, a retired government official, said the period of deduction in excise duty should be specified by the revenue authority so that depositors can pay all types of taxes once for their single-year FDR.

Even for a five-year FDR, depositors have to pay excise duty for six financial years, he added.

He said "money under the mattress" would be encouraged had the government kept continuing imposing such a tax burden on bank deposits.

"After five years, there might be negative yield, taking the inflation into account, on my bank deposit after getting excise duty deducted every year and other taxes and charges," he noted.

He said the deduction of excise duty on the principal amount is "unjust" for the bank depositors.

In the budget for fiscal year 2017-18, the NBR increased the excise duty on bank deposits amounting to Tk 1.0 million deposits.

However, economists and depositors said people having Tk 1.0 million deposits could not be categorised as 'well-off,' considering rising costs of living in Bangladesh.

Depositors with Tk 1.0 million to Tk 10 million bank deposits are charged Tk 2,500 excise duty per year.

Bank depositors having a balance of Tk 0.1 million to 0.5 million have to pay Tk 150 excise duty.

From Tk 0.5 million to Tk 1.0 million, excise duty is charged at Tk 500.

Accounts that have deposits between Tk 10 million and Tk 50 million are charged Tk 12,000 instead of Tk 7,500.

The excise duty on accounts holding over Tk 50 million has been raised to Tk 25,000 from Tk 15,000.

According to NBR officials, it has been found that excise duty collection climbed to Tk 8.89 billion during FY 2018-19, up from Tk 7.39 billion during FY 2017-18.

Until November 2019, the government received excise duty worth Tk 632 million.

Officials said excise duty collection will be increased in the month of December as banks deduct a large amount of the tax in the last month of the calendar year.

Meanwhile, the government has decided to enforce a maximum of 6.0 percent interest on bank deposits and 9.0 percent on lending from April 2019 as part of single-digit interest rates.

Economist and former finance adviser Dr Mirza Azizul Islam said excise duty should not be imposed on bank depositors as it is meant to rein in "harmful" items such as tobacco and liquor.

He said the government replaced the Excise and Salt Act with the VAT Act, but it still exists on two items.

Bank depositors will be discouraged to keep their money in banks if such tax burden remains in place, he added.

People may divert their investment to other sectors, keep money at home or send money abroad, he added.

Dr Islam said some economists also see the tax at source of interest amount of bank depositors as double taxation as people deposit the money from the income, for which they have already paid taxes.

He said while a tripling amount of revenue comes from such taxes on bank depositors, its impact on small depositors is considerably high.

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