Interest rates on savings tools may go down

Finance Minister AMA Muhith yesterday hinted at lowering the interest rates on savings instruments as the returns from these tools are very high compared to other rates prevailing in the market.

Steps in this regard may be taken in the next budget session, he said after a meeting with the leaders of Dhaka Chamber of Commerce and Industry (DCCI) at his secretariat office.

At present, the commercial banks offer hardly 7 percent for deposits, whereas the rates for savings instruments are over 11 percent.

"This high difference in rates is not sustainable," Muhith told reporters.

The high returns on savings tools are also pushing the government's interest liability up every year.

For example, the government set a target to raise Tk 19,000 crore from the sale of its savings schemes, but the sale was doubled to nearly Tk 38,000 crore in the first nine months till March this fiscal year.

The sale from these tools more than doubled to nearly Tk 34,000 crore against a target of Tk 15,000 crore last fiscal year.

The interest rate on the five-year family savings certificate is 11.52 percent and it 11.76 percent for the five-year pensioner savings schemes. The return on the three-year post office savings certificates stands at 11.28.

Economists and bankers said if the trend continues, money will flow out of bank deposits and end up in savings schemes, meaning the government's interest liability will go up further.

Finance Minister has also reaffirmed that there will be one flat rate for VAT and that it will be effective from July 1.

Muhith spoke on the issue for the first time since a meeting with the prime minister earlier this month.

"I made a public statement earlier that the rate will be one," he said.

As there is objection over the rate, it would be lowered slightly, added Muhith. According to the new VAT law, the flat rate is 15 percent.

Previously, when an announcement was made in the budget, it was usually made effective from October or December. But this time, the VAT law will come into force from July 1, said Muhith.

The finance minister held a meeting with Prime Minister Sheikh Hasina on May 14 on the proposed budgetary measures, including activation of the new VAT law for fiscal 2017-18.

However, he could not discuss it as he left for Saudi Arabia the next day to attend a meeting of the Islamic Development Bank (IDB). He returned on May 19.

Commerce Minister Tofail Ahmed told reporters on May 15 that most of the issues regarding implementation of the VAT law have been finalised; the rest will be sorted later by the prime minister and the finance minister.

The prime minister is now in Saudi Arabia and will return home on May 24.

In response to a query on the reduced VAT rate, the finance minister said it will be finalised on May 25 or 26.

On whether there is any special instruction from the prime minister, Muhith said, "Nothing special."

"I have reported to her that there is strong opposition to the VAT in the business circle. She was rather surprised. She asked why should there be?"

The finance minister said the VAT law was formulated in 2012. It is being implemented gradually. "Why are there such threats that everything will be closed down?"