Small savers to cheer as source tax slashed

The National Board of Revenue (NBR) has made 5.0 per cent reduced rate of tax at source on the yields of savings certificates in case of investments up to Tk 0.5 million.
The decision was to take effect from August 28, 2019 and onwards.
The internal resources division has issued a statutory order allowing small savers to benefit from the reduced rate.
But if the investment goes beyond Tk 0.5 million, the investors will have to pay 10 per cent tax at source on total amount of yields.
The lower tax rate has been offered irrespective of the purchasing period of savings tools by the investors.
However, the interest on pensioners and wage earners' bond is exempted from the payment of taxes if the amount is within Tk 0.5 million.
In the Finance Bill-2019, the government had doubled the tax at source on savings tools to 10 per cent, irrespective of the investment ceiling to make it consistent with the bank interest rate.
The revenue board cut the tax rate to 5.0 per cent for small investors in response to the demands from small savers and recommendations from the policy makers.
The order has been issued after a directive of the finance minister AHM Mustafa Kamal, officials said.
However, tax at source was 5.0 per cent for all of the savings certificates, except pensioners and wage earners bond, in the last FY.
A senior tax official said the investors of the savings tools who have withdrawn yields between July 1 to August 27, 2019, and paid tax at a rate of 10 per cent will not get the refund of the additional amount of taxes.
Taxes collected from the interest amount of savings tools are considered final payment and there will be no scope for adjustment and refund, he said.
The source tax on savings certificates, after a certain ceiling, saw the hike after three years as the government, despite several attempts, failed to cut the high yield rate of the tools, said the official.
He said the source tax, regardless of the investment amount, was 10 per cent on the interest amount of savings certificates until 2016.
The government had reduced the tax to 5.0 per cent that year after it had planned to cut the existing high rate of interest, he added.
He said the NBR has increased the tax rate to that level again as the yield rate of savings certificates has remained unchanged in the last three years.
Currently, interest rate against bank deposits ranges from 6.5 to 11 per cent while investors of the savings certificates get return on their investment up to 11.04 to 11.76 per cent.
Bank depositors, who have Taxpayer Identification Number, have to pay 10 per cent tax at source on their interest amount while the tax rate is 15 per cent if depositors have no TIN.
The Directorate of National Savings (DNS) has made TIN mandatory for purchasing savings certificates.
The high yield rate of savings tools encourages investors to buy savings tools instead of depositing money in the banks.
The Directorate data shows the net sales of savings tools during FY 2018-19 was at Tk 499.39 billion exceeding the government's revised target for the year.
Currently, investors of the savings certificates enjoy three major benefits, including a reduced rate of tax as finally paid tax (final settlement) on the income from savings certificates, investment rebate and high yield rates compared to those of bank depositors.

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