Savers resent ‘whimsical’ deduction of source-tax

Savers have resented the deduction of tax at higher rate on the yield of their government savings tools (Sanchayapatras) that had fallen due on or before June 30 last.

Whims rather than reasons and rules are at play as far as imposing tax is concerned, they have alleged.

They expressed disappointment over, what they described, double standard and breach of commitment on the part of the government through tax deduction.

The holders of savings tools, who had en-cashed their profit coupons matured on or before June 30 last, did pay source tax at the rate of 5.0 per cent, but others who could not do the same for illness or some other reasons are being forced to pay tax at 10 per cent.

It is also not mandatory to submit coupons and collect profit on the very date of their maturity.

The investors are also not getting the amount of profit as per the commitment made at the time of purchasing the savings tools, they said. 'It seems that the hike in tax rate has been given retrospective effect by the National Board of Revenue (NBR)', said a saver.

Now, the investors are being forced to shoulder a liability of a 10-per cent tax at source on the yield of savings tools that matured before July 01, 2019, he alleged.

The government has increased tax at source to 10 per cent from 5.0 per cent for all types of savings tools this fiscal through the Finance Bill,2019.

However, the investors are eligible to enjoy a 5.0-per cent tax at source on their yield earned during the FY 2018-19.

As per the income tax law, tax officials consider the time of withdrawal of profit, not the time of maturity, for imposition of taxes.

Therefore, the savers are getting a discriminatory treatment.

Moreover, an investor alleged, any reduction in the amount that the government has committed to pay in writing in the Sanchayapatras is illegal.

The savings instruments issued by the government in the name of their buyers do clearly say that the issuing banks, post offices and offices of directorate of national savings will be 'bound' to pay the amount of (profit) mentioned in another page of the same to their holders.

But the relevant agencies are now paying less than the amount mentioned in the savings certificates by deducting an additional 5.0 per cent tax.

Economists said the investors should not be punished by imposing the higher taxes for their delayed withdrawal of profits.

An investor might not be available in the country at that time or was sick or busy, but they are entitled to enjoy the 5.0-per cent rate on their profits, they argued.

Dr Ahsan H Mansur, executive director of the Policy Research Institute, said it is against international practice to deduct tax giving retrospective effect.

"Tax should be imposed on an accrual basis of income. Such ad-hoc imposition of taxes makes tax laws distorted," he commented.

Domestic tax laws should follow certain economic principles as per international best practices, he said.

"Tax should be imposed on current and future income of the taxpayers, not on the income of previous years," Dr Mansur observed.

Institute of Chartered Accountants of Bangladesh member Snehasish Barua also said retrospective effect of tax contradicts the principle of tax law.

He, however, said taxmen have some logic as tax deductions at source are applicable at the time of making payment or adjustment as per income tax law.

Usually, taxpayers avoid showing income in their tax files unless they receive cash in hand, Mr Barua added.

Income tax member Kanon Kumar Roy said an investor will have to show in tax returns the amount of profit that they withdraw in that particular year.

"Income tax law doesn't consider the time of maturity or the year of income. Time of withdrawal of the profit is considered while levying taxes."

Mr Roy, however, said imposition of taxes based on maturity time of the instruments is difficult in the manual tax collection system with scope of tax evasion.

"Once the tax department is automated, such options might be explored," he felt.

Mr Roy also dismissed the allegation of violating the contract with the investors.

"The Directorate of National Savings has an agreement with investors on the rate of profit gains, not on the rate of taxes."

He said tax department has no agreement with investors on tax rates as they change with every fiscal budget.

But the fact remains that the income tax wing had changed its rule in FY 2011-12 when it had cut tax at source to 5.0 per cent from 10 per cent.

It had made the new reduced rate effective for new buyers who purchased savings certificates after June 30, 2011.

In FY 2010-11, tax at source on profit amount of all savings certificates was applicable at a rate of 10 per cent irrespective of their purchasing dates.

Taxmen at that time had said they amended the rule for small savers as they purchased the tools by signing an agreement with the government.

In FY '11, people paid a 10-per cent tax at source at the time of withdrawal of profits earned from the instruments which they purchased earlier when tax rate was zero.

The tax department amended the rule in FY 2011-12 following widespread criticism from investors and policymakers.

The amended rule turned invalid after FY 2011-12.

The taxmen, however, declined to comment on that amendment.

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