CA steps in to restore investors' confidence on savings certificates

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Doulot Akter Mala
Chief Adviser Fakhruddin Ahmed recently sought clarification from Finance Ministry regarding imposition of 10 per cent tax at source on interest of savings instruments.
The CA issued a letter on August 2 addressing the Finance Adviser AB Mirza Azizul Islam to verify the facts and take necessary action for preventing loss of confidence among small investors.
"The circular said the 10 per cent deduction from tax at source from the savings certificates would be applied retrospectively from 2004. This obviously will create an impression to the purchasers of the certificates that the government is reneging on its past commitments," the CA said in the letter.
"The small revenue gain from this outweighs the confidence loss that may be created by the circular", he wrote.
The NBR issued an order on July 10 imposing 10 per cent tax, deductible at source, on annual income in excess of Tk 25,000 accruing from savings instruments.
When asked whether such levy on small investment would discourage the investors, the NBR chairman Badiur Rahman said: "The government will deduct the tax at source from the interest accruing from July 1, 2007 and beyond, so it is not violating the contractual agreements with the investors."
Any income from defence certificates are still tax free, he emphasised.
The NBR has made it clear that the investors will not have to pay tax on income against interest generated during the period from July 2004 to June 30, 2007.
The deduction of 10 per cent tax at source is the final settlement for the savings instruments and this income will not be re-assessed during submission of annual income tax returns, he added.
There is a misconception among the investors as well as banks about deduction of tax on their interest income received since 2004.
The investors do not have to pay further tax on the interest of the savings instruments, as the government will deduct it from the source, the NBR chairman said.
Earlier, taxpayers had to pay higher tax rates as the income from savings instruments were also included in their total earnings. But from now on, they will only pay 10 per cent tax on the income of savings instruments.
The existing income tax ceilings are 10 per cent, 15 per cent and 25 per cent for income starting from Tk 150,000 and above.
"We have found that a large number of tax payers did not show their income on investments in savings instruments while filing tax returns, thus depriving the board of its revenue," he said.
In the income tax law, all kinds of savings instruments are in the net of income tax. Earlier, the interest of the savings instruments was included with the income of taxpayers but from now on it will be deducted from the source.
The NBR order has made it clear that an income taxpayer will not fall victim to double taxation if they disclose in their tax returns that applicable tax has been deducted at source.