Tax benefits for UPS

The Universal Pension Scheme (UPS) is certainly a bold and highly useful saving instrument ---one that guarantees financial security particularly for the small savers who are not covered by any effective contributory scheme allowing them any such benefit in their old age. Although under the UPS Management Act-2023, contribution to and income from the scheme are tax-free, it is as yet contradictory to the Income Tax Act. This means that incomes from UPS like the premium of life insurance policy, contribution to provident fund, approved gratuity fund, government securities and mutual fund beyond Tk 0.50 million are taxable. Taka 0.50 million is a paltry sum even for pension-holders of small savers. Currently, employees from the private and non-formal sector have to pay an outrageous 27.5 per cent tax on their provident fund. This again is anomalous and unjust if considered with the same benefit for government employees, which is tax-free.

Clearly, non-government employees and small savers from informal sectors will feel encouraged to avail  the UPS provided that the benefit proceedings are made tax-free as well. Happily, a move is on to make it so. The income tax wing of the National Board of Revenue (NBR) is going to issue a statutory regulatory order (SRO) soon to make this happen. This is incumbent on the NBR because, in matters of tax, any other law is superseded by the Income Tax Act. To make incomes under the UPS Act non-taxable, the NBR has to guarantee the concession through this SRO. This will certainly do for the purpose presently. One lurking fear, though, is that this SRO may go though revision in future. A similar thing happened in case of saving certificates when the previous higher rates of interests were suddenly brought down. Let there be a consistency of policy so that people with meagre savings are not deprived of the benefits they are promised now.

Undoubtedly, the government now needs funds and small savers who are at a loss how to invest their paltry savings can make good use of the UPS in their quest for securing their financial future to a large extent. In the process, idle money gets circulated and the contributors, the government and the entire nation become beneficiaries. In that sense, the UPS can serve as catalyst to economic prosperity for all provided that the scheme is prudently handled for productive purposes. If abused, the result can be disastrous. So there is a need for reinvestment of the accumulated funds in highly productive sectors, not for government expenditure.

The UPS may encounter challenges like that of the legal provisions of the NBR. After all, a certain degree of trial and error cannot be ruled out in case of its full implementation at the initial stage. But if the purpose is sincere and pro-people, such impediments can be overcome. Now that the country is facing unprecedented challenges on the economic front, the UPS can be used as a boon or a bane. Boon, if the money is invested to infuse blood into the economy; bane, if it is misspent for unproductive purposes. Let's hope for the best for the scheme.