Tax receipts from depositors' interest earnings rise 78pc
Tax receipts from the interest earnings of savings and fixed-deposit accountholders in banks rose 78 percent year-on-year in the last fiscal year.
The National Board of Revenue (NBR) received Tk 5,115 crore in 2013-14, up from Tk 2,869 crore a year ago.
Taxmen attributed the growth to the high rate of interest on deposits and the flow of funds into the banks after people shunned the stockmarket following its 2011 crash.
Continued monitoring by the NBR to ensure deduction of advance income tax also contributed to the increased collection, a senior NBR official said seeking anonymity.
Such collection of advance tax has, however, created criticism that many people with an annual income below the tax-free limit of Tk 2.2 lakh are being taxed when tax evasion by the rich is rife.
The NBR is collecting the tax at a time when Bangladesh Bank is pursuing a policy of financial inclusion and encouraging farmers, social safety net beneficiaries and students to open bank accounts with Tk 10 only.
All of the nearly two crore savers now face a withholding tax on the interest income from their savings.
Savers who have deposits less than Tk 1 have to pay 10 percent withholding tax on their interest earnings.
People with over Tk 1 lakh in deposits and without any taxpayer identification number have to pay 15 percent advance tax on their interest income, and with TIN 10 percent.
The tax authority has been collecting such tax for more than two decades as a medium to tax the undisclosed income of those who hide their wealth in tax statements by depositing money using other's names.
Deposits in the banks rose 2.26 percent year-on-year to Tk 637,835.1 crore in October, according to Bangladesh Bank.
Taxmen, however, said tax on depositors' interest earnings is adjustable with the actual tax payable during submission of annual tax returns.
One who does not have taxable income can claim refunds by submitting returns. In addition, taxpayers can seek a waiver if their income is less than taxable income threshold.
"It is not possible for small savers, particularly holders of Tk 10 accounts, to go to the tax office to seek a waiver," said Md Aminur Rahman, former member of income tax at the NBR.
"The culture of giving refunds is also almost absent” in the tax administration, he said. Tax officials feel shaky for giving refunds for fears of being blamed for bias and of coming under increased surveillance, he said. Rahman said the NBR can collect the tax based on the slabs of interest earnings of depositors to avoid levying small savers.
"Currently, interest rates of savings accounts of most of the banks are set below the rate of inflation. It is necessary to protect the small savers."
Rahman suggested the tax authority consider the issue from the macroeconomic perspective, not only for collecting taxes. "Savings are necessary for investment.”
A fall in savings will affect the investment, which will ultimately slow economic growth, he said.
“Many savers may spend their incomes instead of going for savings if they find their interest incomes are taxed even if it falls below the inflation rate," he said.
In the face of falling interest rates on savings and fixed deposits, many people have started switching to state-sponsored savings certificates.
The NBR can grant a tax waiver to farmers and students, said Towfiqul Islam Khan, research fellow of the Centre for Policy Dialogue.
Finance Minister AMA Muhith has recently asked the NBR to give its view whether such advance tax for the low-income people can be waived. The tax authority has not yet given its opinion.
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