Excise duty on bank deposit and small savers

The government will lose only Tk 3.55 billion if the excise duty on bank deposits is withdrawn. This was stated by none other than the agriculture minister, Matia Chowdhury, while taking part in a parliamentary discussion on budgetary measures.

In his budget speech for the fiscal 2017-2018, Finance Minister AMA Muhith slapped a 60 per cent hike in excise duty on account balance between Tk 0.1 million and Tk 1.0 million and a 67 per cent hike for more than Tk 1.0 million. As a result, thousands of people, who have some savings in the form of bank deposits, are paying the government Tk 800 for Tk 0.1 millon deposit.

The government expanded excise duty waiver on bank account balance, but it has to be less than Tk 100,000. The rise in the excise duty from Tk 500 to Tk 800 a year on account balance of more than Tk 100,000 drew criticism from a wider spectrum of society, mainly small savers.

For a bank balance between Tk 1.0 million and Tk 1.0 million, the excise duty is Tk 2,500, about 67 per cent higher than the previous rate. Some Tk 12,000 in excise duty, instead of the existing Tk 7,500, was slapped on a bank balance between Tk 10 million Tk 50 million. And for a bank balance exceeding Tk 50 million, the excise duty has been fixed at Tk 25,000, up from Tk 15,000.

In our country, banks follow a January-to-December financial year, while the government follows a July-to-June financial year. If a fixed deposit (FDR) is opened on or after January in a particular year, and it matures in December of that year, or earlier. In that case, excise duty will be deducted only once. But if it is opened in the month of October and it matures in January next year, then it will attract excise duty twice, as the FDR period spans two banking fiscal years.

Similarly, in case of deposit pension scheme (DPS), a 10 per cent tax will be deducted on interest earned, for TIN holders, and 15 per cent for non-TIN holders. Here, too, the excise duty will kick in when the entire year's deposit value crosses the Tk. 0.1 million threshold.

Analysis, economists and bankers say the additional levy on bank deposits will erode the real savings of the country's citizens. They have urged the government to withdraw the additional excise duty on debit or credit balances. Such measure has already left a negative impact on the savers.

Deposits in the banks are dwindling, making people reluctant to keep their money with banks. If the money goes out of the country through illegal channels due to such measure, it will have a negative impact on the country's lagging investment and employment fronts, the country's business leaders said at a recent press briefing.

The finance minister, however, defended the imposition of the excise duty and said the poor will not take a hit from the increased excise duty on bank account balance. There is no excise duty on balance of less than Tk 100,000, he said. He believes those who have at least Tk 100,000 in bank accounts are well-off, which means they are capable of paying excise duty.

The country's depositors still depend on banks to keep their money safe, thinking that the returns from their savings would help them mitigate any financial problem, but the continued slide in the deposit rate coupled with the increased excise duty has thrown the clients into a bad situation.

Due to the lower deposit rates at banks earlier, people have been investing heavily in the national savings certificates and bonds in the recent period as the rates of interest on the tools are between 11.04 per cent and 11.76 per cent. The net investment in the government tools surpassed Tk 400 billion in the first 10 months of FY17, which is a record on the basis of annual investment.

However, of late, in view of the increasing withdrawal of the savings deposits by the clients, many banks have raised their interest rates on savings deposits. Many banks are suffering from serious liquidity crisis. Even some problem banks are reported to be unable to pay back the depositors' money. Banking sector, as a whole, is in serious crisis, of late.

On its part, the National Board of Revenue (NBR) said the excise duty has been there for many years under the Excise and Salt Act of 1944. But after the introduction of VAT in 1991, the government started phasing out excise duties. It, however, retained excise duty on two things -- air tickets and bank deposits. It claimed that even if deposits at a bank account cross different threshold levels several times in a given year, excise duty would be deducted only once.

Many depositors have raised voice for waiver of excise duty altogether, while others feel such different slabs and increase in duty on deposits would erode their financial capability. They find it unjust to hike excise duty on thousands of bank depositors and suggested that the government better expand tax net and bring many solvent yet untaxed people under income tax net.

 The hike in excise duty on bank deposit will not only affect the depositors, it will also make the already struggling banking sector sicker. The real rate of return from deposits has already been negative because the interest rate has dropped below the inflation rate. Therefore, the new excise duty is totally unrealistic, and the government should withdraw this proposal, say analysts.

Many parliament members, immediately after the announcement of the last budget, sharply criticised the finance minister for proposing the excise duty. Taking floor in parliament, the agriculture minister said if we can bear the burden of loan defaulters, then why we will not be able to take the responsibility of lower- and middle-income people.

 The burden of excise duty on bank deposits is adding to the financial constraints of the people. Then why not is the government giving a serious thought of withdrawing it?

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