Investors confused over actual rate of deduction

Deduction of taxes on profit gains from the government's savings tools has created confusion among the investors concerned as the provision regarding the actual tax liability has not been well-defined.
A number of small savers have already raised the issue as they are still in the dark about the actual payable tax on their profit from the investment in savings tools.  
They are confused about the tax measures on the state-run savings instruments as neither the Internal Resources Division (IRD), nor the National Savings Directorate (NSD) has clear guidelines on this.
In the key features of the NSD website, tax on savings tools has been mentioned at different rates on the profit.
But in effect tax liability is much higher as the income from savings tools will be added to the total income at the time of submission of tax returns at the year-end.
According to the existing income tax ordinance, 1984, small savers have to pay tax at source ranging from five per cent to twenty per cent on the profit of the savings certificates.
A senior tax official said the paid tax at source on savings certificates would be adjusted with the actual payable tax at the time of submission of tax return.
"Income from savings certificates will be considered as taxable. Investors have to pay tax on profits of savings instruments as per the existing tax rates for individual taxpayers," he said.
Sayeedul Huq Choudhury, a retired banker, said the reduced tax rate had attracted him to invest in the instrument.
 "The actual tax liability is not the rates offered as the authorities impose tax on total income of the instruments. I was unaware of the matter before investment," he added.
Mr Choudhury, however, said the tax at source should be considered as the final tax liability on profits of the savings tools as it is meant for small savers.
Salma Huq, a small saver, said she has invested in the family savings tools upon being attracted by the low rate of tax of 5.0 per cent.
 "I do not have taxable income to get refund or adjust the tax at source," she said.
Tax lawyers and taxpayers have expressed their grievances over the issue as they felt they too had been misguided by the authorities concerned over the actual benefit from investment in the government's savings tools.
Talking to the FE, a senior official of the national savings directorate acknowledged the matter and gave assurance of making it clear in the investors' guidelines.
 "The tax on savings instruments is not a final settlement. Investors have to pay tax on the income derived from the savings tools," he added.
An income tax official said tax should be cut at source at the time of withdrawal of profit, no matter, whether it is being withdrawn every month or after maturity.
 "Investors can seek a statement or certificate from their respective commercial banks on deduction of tax at source and submit it before taxmen to claim rebate," he said.
Many of the small investors said they have invested in the tools following the attractive tax rates compared to that of the other savings schemes. Investment in the tools has increased significantly in the current year following limited scopes in the other sectors' investment.
According to the official data, the net investment in the savings tools reached Tk 49.83 billion in July-January period of the current fiscal year. The government's net borrowing from the instruments surpassed its target for the entire year in the seven-month period of the fiscal.