National Board of Revenue (NBR) collected the highest-ever amount of Tk 65.77 billion as tax on the interest income from bank deposits in FY 2018-19.
According to Bangladesh Bank (BB) data, the volume of bank deposits grew by 11.07 per cent in 2018 while tax collection from bank depositors soared by 3.79 per cent in FY 19.NBR collected Tk 15.54 billion as tax at source on bank deposits in FY 2009, which jumped by more than four times in FY 19.
Commercial banks deduct tax at source from the interest income of deposits as per the direction of NBR. The tax earning at source was Tk 15.54 billion in the fiscal year 2009 and it gradually increased to Tk 18.46 billion in 2010, Tk 21.07 billion in 2011, Tk 26.41 billion in 2012, Tk 38.66 billion in 2013, Tk 48.5 billion in 2014, Tk 60.75 billion in 2015, Tk 52.16 billion in 2016, Tk 54.54 billion in 2017 and Tk 56.61 billion in 2018.
This rise in the source-tax collection is attributed to a rise in the number of deposit accounts and volume of bank deposits in addition to the rise in the tax rate for some depositors, experts said.
NBR received tax at a rate of 10 per cent on the interest income of the bank depositors having a taxpayer identification number (TIN). The rate of tax at source is 15 per cent for depositors without any TIN. The bank deposits amounting to Tk 0.1 million or less are required to pay source-tax at 10 per cent.
Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh (ABB), told the Daily Sun that higher interest rates contributed to a rise in bank deposits and the volume of tax realised from the interest earned from bank deposits.
Syed Mahbubur Rahman, also the Managing Directors and CEO of Dhaka Bank, said the banks are offering 9.0 to 10 per cent of interest rates on fixed deposits to attract the depositors.He also appreciated the role of agent banking in increasing the number of depositors.
“The tax rate on interest income should not be more than 5.0 per cent to encourage savings,” he, however, said.
NBR officials said tax collection from bank depositors could be much higher if the TIN verification could have been done properly.
The tax rate is 10 per cent for TIN holders, he explained, but the banks cannot verify if the TIN numbers are genuine or not.
They suspect that fake TINs are used at the time of opening accounts. This way, many are evading 5.0-per cent penal tax for not having TINs.
Currently, some 4.0 million out of 160 million people have TINs. However, the number of bank depositors is around 30 million in the country.
NBR needs an automated system to help bankers verify TINs that are submitted at the time of opening bank accounts, the officials said.
Currently, NBR has no mechanism to verify TIN, sources said.
They said strong monitoring of a proper depository of withholding taxes by banks is one of the major reasons behind a boost in tax revenue collection from this sector.
Tax collection from bank deposits might increase further if depositors’ propensity to invest their savings into savings instruments decline, they added.
The officials observed a sizable number of bank depositors paid an additional 5.0-per cent tax on profit of their deposits instead of furnishing TINs.
It worked as a boon for income tax wing as many of the money-holders from the informal economy are paying this additional tax to evade payment of taxes.
Officials said source-tax on bank depositors has helped the government collect taxes from the evaders who are not obtaining TINs or submitting tax returns.