Revival of tax benefit to investors in savings certificates is likely soon for giving them some financial relief and augmenting investment in government borrowing instruments.
Sources say the government has made a decision to this effect to ease the tax liability of the investors in the savings instruments and thus cushion taxpayers having multiple sources of income.
"The provision on a pared-down tax rate for the income derived from savings certificates might be reinstated shortly," says one official.
In the new Income tax Act 2023, the National Board of Revenue (NBR) has scrapped a provision that had allowed income derived from government savings tools to enjoy a reduced rate of tax.
In the Income Tax Ordiance1984, tax at source paid on the interest income from savings tools was considered as finally paid tax on the income of a taxpayer from the instruments.
Under the new law on taxing people's income, taxpayers would have to pay source tax on the income but the profits from the instruments would be added to the other taxable incomes of taxpayers.
With the changes, an investor in savings tools will have to pay income tax at higher rate applicable to the latter under regular tax slab ranging 10 per cent to 25 per cent.
Currently, source tax on savings certificates is 5.0 per cent.
The new fiscal measures have escalated tax liability of saving-certificate investors who have other sources of income.
Addressing the issue, the revenue board recently sent a summary to Finance Minister AHM Mustofa Kamal to reinstate the provision of the previous Income Tax Ordinance 1984 to consider source tax on savings certificates as finally paid tax on the income.
Until June 30, such investors had to pay 10-percent tax on interest amount on their savings schemes. They did not have to pay any other taxes further on the interest amount as it was considered 'final settlement of taxes' in the tax law.
Now, the source tax, paid from the interest amount, would be adjusted with the actual payable taxes. The taxpayers would have to pay tax on their entire taxable income, including that derived from investment in savings certificates.
The amount of interest on savings certificates would be added to the other incomes of a taxpayer and rates of payable taxes would be applicable on the basis of existing tax slabs starting from above Tk 350,000 in a year.
"Many of the retired government and private officials and homemakers meet their family expenditures with the profits from government savings tools. They show income derived from investment in the instruments in their respective tax returns," NBR Chairman Abu Hena Md Rahmatul Muneem wrote in the summary sent to the finance minister for tax justice.
Household expenditures of taxpayers would increase if tax liability goes up from their income from savings tools, the letter reads.
Jasim Uddin Rasel, fellow member of The Institute of Chartered Accountants of Bangladesh (ICAB), thinks the NBR could earn more revenue under the new measures for investors in savings instruments but low-income people would lose out.
Currently, the source tax on savings instruments is considered 'minimum tax' where the low-income people cannot claim refund or adjustments of the paid taxes if their deducted amount is less than the regular payable tax, he says.
The ultimate impact will go to high earners who will pay tax above 10 per cent during calculating slab-wise tax at the time of filing tax return.
"The interest will be added up to regular taxable income and will be considered for regular tax calculation. The tax burden will increase due to withdrawal of final-settlement tax benefits," he says.
However, he adds, this group of taxpayers will be able to include this income at the time of calculating the tax-rebate benefit.
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