Source tax soars despite lower deposit growth

Deposit gains of nontaxable low-income people are even being taxed for enforcement puzzles of the new law that yield revenue growth and depress savings.
Kulsum Banu, a part-time domestic help in Dhaka's Shantinagar area, is one who gets in the toils of the new income-tax law for its enforcement imbroglio. She received Tk 600 less than her expected receipt from bank deposits.
A tax at a rate of 15 per cent has been deducted from the profits of Ms Banu by the bank concerned for depositing the money with government exchequer.
Banu neither has taxable income nor does she submit tax return to claim the refund of her paid tax to the public exchequer.
"I came to know the unfair levy from my employer in the household who helped me to open the bank account," laments Ms Banu.
She is one of hundreds of thousands who have been paying income tax despite not having taxable income.
As per tax law, the National Board of Revenue (NBR) collects 10-percent source tax on interest incomes derived from bank deposits. However, an additional 5.0-percent source tax is deducted if any depositor failed to furnish proof of submission of tax return (PSR) to the bank.
Many of the bank depositors are not aware of the PSR submission as only submission of Taxpayer Identification Number (TIN) had been mandatory until fiscal year 2020-21.
Despite having PSR, a large number of bank depositors have paid source tax at a rate of 15 per cent on their interest amount, banking-sector insiders said about quandary.
A private commercial bank officer says the banks have nothing to do but deduct the tax at 15 per cent if clients fail to submit PSR.
According to the income-tax law, bank officials would be held responsible in case of their failure to deduct source taxes at the rates prescribed by tax authority, the banker said.
"We have sent text massages to the clients to submit PSR if they want to avoid payment of higher taxes, but many didn't respond accordingly," she adds.
Such deduction of source taxes from both taxpayers and non-taxpayers contributed to a steep 28.20-percent growth in source-tax collection from bank depositors last year (FY 2022-23) although bank deposits marked a record low in last four years, according to NBR data.
In the past fiscal, the National Board of Revenue (NBR) collected source taxes worth Tk 90.01 billion from the bank depositors which remained almost stagnant in the last two corresponding FYs.
The NBR had collected source taxes worth Tk 74.34 billion and Tk 70.21 billion in the previous two corresponding years of 2020-21 and 2021-22.
A senior tax official finds the levy unjust for not having any effective refund mechanism to return the excess paid tax to the taxpayers.
The NBR introduced the levy in FY 2012-13 in a bid to bring a huge amount of informal economy under tax net. However, tax experts have said the regressive tax measure is affecting marginal-income group of people not having taxable incomes.
He, however, says the interest amounts received from all types of securities, except government savings instruments, will be considered 'minimum tax' from this year as per new income-tax act.
Principle of minimum tax limits the scope of refund of the excess tax paid to carry it forward.
From this fiscal year, taxmen would not have to entertain refund applications--though rare--of bank depositors.
Low-income people have to bear the brunt of high tax burden though their income does not cross Tk 350,000-the tax-free ceiling for individual taxpayers.
"There is no justification for having a tax-free ceiling as people of all income groups have to pay income tax, though many refrained from submission of tax returns," says Rajib Sarkar, a student of BBA in a private university in the city.
Bank has deducted Tk 1700 from his bank account as source tax at a rate of 15 per cent due to not having any proof of submission of tax returns, the student adds.
"I have opened the bank account to deposit the money that I receive monthly from three tuitions. The government should refund the amount to people not having taxable income," he says.
Because of less interest against deposits and rising cost of living in the country, deposit growth in the banking sector was the lowest in the fiscal year compared to the previous four fiscal years.
Loss of trust on the banking sector following loan scams, low rate of interest on deposits, rising cost of living in the country affected deposit growth in the banking sector last year.
Deposit growth in the banking sector was the lowest in FY 2022-23 compared to the previous four FYs.
Deposit growth in the banking sector rose by 8.40 per cent to Tk 15.95 trillion in FY23 compared to the same period of the previous fiscal year, Bangladesh Bank data revealed. Sources say governmental vision on financial inclusion and introducing cashless economy would be discouraged due to unfair tax treatment, not progressive in nature.
Inequality has been surging in the country as tax burden on well-offs is lower than that on low- income people in Bangladesh.

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