Investment ceiling likely at Tk 0.5m for rebates on govt securities

Investors in government securities may experience a reduction in their investment rebate on tax filings starting from July 1, 2023.

According to the new Income Tax Bill-2023, which was placed in Parliament on Thursday, the government is going to establish a limit of up to Tk 0.5 million for the first time, allowing investment rebates in its savings instruments.

This measure is being taken in an effort to control the investment in savings instruments and alleviate the government’s burden of interest payments from domestic borrowing, according to officials.

Based on data from the Ministry of Finance, the government may have to pay Tk 451 billion in interest for savings instruments in the current fiscal year.

Investors in savings certificates enjoy an interest rate of up to 11.52 per cent, whereas it ranges from 6.0 to 8.0 per cent in banks.

The tax authority said it will not grant tax rebates to individual taxpayers exceeding the limit from the upcoming fiscal year if the new law receives parliamentary consent. The cabinet approved the new law on June 1, 2023.

Certain provisions of the new law have already been misinterpreted, leading to widespread confusion among some individuals.

While talking to the FE, a senior tax official said that tax exemptions for specific cases, including the capital market, typically come through a Statutory Regulatory Order (SRO), which is not usually incorporated into the original law.

The National Board of Revenue (NBR) might issue an SRO to provide exemptions for some vital sectors in the near future, he added.

Currently, there is no investment ceiling imposed by the tax authority on government securities. However, taxmen allow a 15 per cent investment rebate and consider an allowable investment limit of up to 20 per cent of a taxpayer’s annual taxable income.

Regarding investment rebates, the new law may also establish a limit of up to Tk 0.5 for investments in unit certificates, mutual funds, exchange-traded funds or ETFs, joint investment scheme unit certificates issued by any financial institution, Investment Corporation of Bangladesh (ICB) or asset or fund managers.

Taxpayers and accounting professionals have expressed concerns that the new provision will limit investment options for small savers. Government securities include savings certificates, treasury bills, bonds, sukuk, Shariah-based securities and similar certificates.

Currently, investors are allowed to invest up to Tk 5.0 million in savings tools.

Snehasish Barua, a tax expert and member of the new Tax Law Review Committee, said the new provision would limit safe and secure investment opportunities for small savers.

People who prefer low-risk investments, such as government savings tools, are attracted to the security and good returns they offer, he said.

Aminur Rahman, a former income tax member, pointed out that unexplained investments may be treated as income according to the tax law.

New taxpayers who have accumulated investments over the years but failed to maintain records may face difficulties in explaining their investments, he commented, adding that this situation is particularly relevant to progressive investments in “Sanchayapatra” by housewives, retired individuals and others.

Rahman suggested implementing a threshold limit for new taxpayers, allowing them to accept investments without explanation. Beyond that limit, a lower tax rate could be applied to explain the investment.

In the current fiscal year budget, the government has made Taxpayer Identification Numbers (TIN) mandatory for investments in savings certificates above Tk 0.5 million.

The high-interest rate on savings tools contributes to the government’s debt burden. For the fiscal year 2023, the government has revised its borrowing target from savings tools downward to Tk 200 billion from the previous Tk 350 billion.

For the upcoming fiscal year, the borrowing target from the government savings tools has been set at Tk 180 billion.

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