Tax relief for small savers in banks likely

Tax relief for small savers is under review of the government following widespread criticism over levying tax on interest income from bank deposits belonging to people with non-taxable income.
The Finance Minister recently sought taxmen's opinion on exempting the small savers having less than Tk 0.5 million bank balance from payment of at-source tax on their interest amount on bank deposits.
The Finance Minister pointed out only 'savings accounts', not FDR or other savings tools, officials said.
Currently, all bank depositors including small savers, who have Taxpayers Identification Number (TIN), have to pay 10 per cent tax at-source on their profit from bank deposits. In case of not having TIN, the bank depositors have to pay an additional 5.0 per cent tax at source. But, bank depositors who have deposits below Tk 0.1 million are not required to pay additional 5.0 per cent tax on their interest amount.
However, the paid tax is adjustable with the actual payable tax at the time of submission of annual tax returns.
The tax measure on collection of additional 5.0 per cent tax was incorporated in the budget for FY 2012-13. Tax officials have found the AIT on bank deposits as a boon for tax revenue collection as the authority could mop up a considerable amount of untaxed and undisclosed money through the measure.
However, the tax measure also caused negative impact on the small savers who do not have taxable income. They do not have any mechanism to get back the money deducted at source.
Talking to the FE, a senior tax official said the Finance Minister sought the NBR's opinion on the impact of offering a tax relief for savings account holders having less than Tk 0.5 million deposits.
The NBR is yet to give its opinion as the issue is under scrutiny of the income tax wing, he said.
Another tax official said imposing an exemption limit might cause distortion in the system as a vested quarter can take advantage of tax exemption.
The government will lose a considerable amount of tax with exemption which may force the taxmen to impose other forms of tax on the new sector, he said.
The NBR collected some Tk 6.14 billion AIT in fiscal year 2013-14 from savings account bank interest.
Officials said some bank depositors may evade payment of tax by keeping less than Tk 0.5 million balances in several accounts of various banks.
In that case, bank depositors will be able to enjoy tax exemption on a large amount of interest on bank deposits taking an undue advantage of the facility, the said.
Such distortion will cause discrimination in tax system causing difficulties for taxmen over identifying the bank depositors, they added.
However, Association of Bankers, Bangladesh (ABB) Chairman Ali Reza Iftekhar, also Managing Director and Chief Executive Officer (CEO) of Eastern Bank Limited (EBL), favoured such a move by the government.
He said the government can also categorise the bank depositors as students, senior citizens, farmers and women entrepreneurs to offer tax exemption on bank deposit interest.
"The tax measure has cause hardship to many of the bank depositors who meet their family expenses with profit earned from bank deposits," he added.
On misuse of the tax relief, Mr Iftekhar said some vested quarters could take advantage of the loopholes of a law but greater interest should be considered beyond this.
According to the Bangladesh Bank (BB), there are some 20 million bank depositors in the country while the number of taxpayers is 1.0 million.
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