Excise-duty collection for government exchequer from principal amounts of bank depositors swelled amid a surge in deposits and expansion of banking sector in Bangladesh.
Two cardinal financial factors are being cited by analysts for certain classes of people keeping money with banks in larger numbers and amounts. One is lack of investment scope for common savers. The other is monetary uncertainty of private-sector employees in the absence of private pension.
People depositing money with 17 large scheduled commercial banks had to pay 31.41- per cent higher taxes in the form of excise duty last year compared to that of the previous year.
Higher growth in bank deposits due poor investment scenario for the pandemic is one of the major reasons for surge in excise-duty collection, experts said.
According to data from Bangladesh Bank, bank deposits rose by 13.8 per cent from a year ago to Tk 14.85 trillion in the financial year 2020-21. The deposit growth was 10.5 per cent in FY'20.
A number of people who meet family expenses with the interest earned on their bank deposits or savings certificates lamented over such measures that discourage people from saving.
Recently, the government cut down yields for investors in savings certificates on the basis of their volumes of investment, while interest rates on savings accounts and fixed deposits had already rock bottom.
Noor Ferdous, a retired private service-holder, regretted that the government has yet to introduce pension scheme for private-sector employees despite several assurances by the then finance minister.
"People keep their hard-earned savings with banks or purchase savings certificates for a lack of safe and
secure investment opportunities," he said.
Bank depositors sometimes get negative returns on their deposits due to deduction of excise duty against each of the accounts, he added.
Shaabullah Chowdhury, a businessman in old Dhaka, said excise duty is deducted twice on the same principal amount in case of obtaining a bank loan.
"Banks disburse loans into a loan account that are transferred to bank accounts of loan applicants," he added.
On this score, a top official of a private commercial bank said depositors feel discouraged about depositing money with the banking system.
"People would prefer to stash their money away into lockers in their homes," he said about possible blowback from such tax-laden fiscal measures.
Furthermore, he added, the government collects source tax from bank depositors.
Talking to the FE, a senior VAT official acknowledged loopholes on loan accounts but he preferred the existing excise-duty structure as it is "nominal for small savers".
He said people having higher amounts of bank deposits are subject to paying higher excise duty.
Way back in 1991, the government bundled out all of the provisions of the Excise and Salt Act 1944 with the VAT Law, excepting two provisions---excise duty on bank deposits and air tickets.
The VAT official said the government cannot impose such tax under the VAT law as per its principle so it kept the age-old act alive.
Industrial economist Dr Khondaker Golam Moazzem, Research Director of the Center for Policy Dialogue (CPD), however, preferred the excise duty to generate more revenue to meet growing public expenditure.
Excise duty is targeted to contribute 1.12 per cent of the tax revenue receipts in FY'22, he mentioned.
"The excise duty on principal amount is not illogical. According to the current rules, it is progressive in nature….," says the researcher at the private think-tank.
Given the difficulty in raising revenue in Covid period and high bank deposits, excise duty is likely to support the NBR moderately in attaining revenue targets, he said.
The National Board of Revenue (NBR) collected Tk 12.01 billion in excise duty from large 17 scheduled commercial banks in the last fiscal, which is Tk 2.87 billion more than previous year's collection worth Tk 9.13 billion.
The NBR collected Tk29.54 billion worth of VAT from those 17 large banks last year, achieving a 42.98-per cent growth over the corresponding period. Except excise duty, the amount of revenue from those banks stood at Tk 17.53 billion.
Among the 17 banks, depositors with Islami Bank Bangladesh paid 49.56-per cent higher excise duty last year compared to that of the previous year.
Sonali Bank paid 43.71- per cent higher excise duty followed by Agrani Bank 20.15 per cent and Janata Bank 29.84 per cent.
The state-owned Sonali Bank drew the highest bank deposits worth Tk 1.32 trillion while Islami Bank Bangladesh Ltd was top lender by disbursing Tk 1.0 trillion last year.
The country's largest private commercial bank, Pubali Bank, paid 21.75-per cent higher excise duty last year compared to that of previous FY.
Banks' depositors receive 5.6- percent interest from September 1 last after the central bank asked banks to keep rates of returns above inflation rate.
Currently, the NBR collects Tk 150 on bank deposits above Tk 0.1 million to 0.5 million and Tk 500 for deposits above Tk 0.5 million to Tk 1.0 million and Tk 3000 for deposits above Tk 1.0 million to Tk 10 million.
Excise duty at Tk 15,000 is imposed on bank deposits above Tk 10 million up to Tk 50 million while it is Tk 40,000 for deposits above Tk 50 million.
Neighbouring countries, including India, Pakistan, Sri Lanka or Vietnam, have no such excise duty on bank deposits.