The government is likely to increase the rate of tax on the interest income derived from investment in national savings instruments in the upcoming 2019-20 national budget.
Currently, the investors pay 5 per cent tax at the source on the interest or profits from investment in savings tools.
The rate may be set at 7.5 per cent or 10 per cent in the next budget that finance minister AHM Mustafa Kamal will place before the parliament on Thursday.
The finance minister may also announce a set of incentives including increased tax-free dividend income for investors in the capital market to Tk 50,000 from existing Tk 25,000 to rejuvenate the market.
Finance ministry officials said that the rate of source tax, also known as withholding tax, was 10 per cent until FY 2011.
The National Board of Revenue reduced the tax to 5 per cent following a decision of slashing down the high interest rates on investment in the sector.
But, the interest rate, which varies from 11.04 per cent to 11.76 per cent, has not been cut down till now whereas the revenue board has been losing a significant amount of income from the sector, they said.
On the other hand, the sale of savings certificates has been rising in the recent years due to higher interest rates, mounting pressure on the government’s debt management and increasing the debt burden of the government as its interest payment on the investment increased by 23 per cent in July-March of the current fiscal year.
The government spent Tk 18,154 crore in interest payments in the period.
Banks are also in trouble to attract deposits due to lower interest rates on deposits with them.
In this context, the government has decided to increase the withholding tax on the interest derived from investment in savings instruments to increase revenue collection from the sector as well as to make deposits with banks attractive, they added.
Source tax on the interest from savings certificates is considered as final settlement meaning that an investor need not pay additional tax on the income.
According to the Income Tax Ordinance-1984, the tax is applicable on all types of savings tools purchased by individual investors, an approved superannuation fund, pension fund, gratuity fund, a recognized provident fund or a workers’ profit participation fund.
Investors in pensioners’ savings certificates, however, get exemption from payment of the tax on cumulative investment at the end of the income year up to Tk 5 lakh.
Source tax is also not applicable on the interest arising from wage earners development bond, US dollar premium bond, US dollar investment bond, Euro premium bond, Euro investment bond, Pound sterling investment bond or Pound sterling premium bond.
NBR officials said that a set of administrative measures including making taxpayers identification number (TIN) mandatory for payment of electricity bills by consumers having commercial connections and house property owners are on the cards to bring them under tax net and ensure submission of tax returns.
Currently, having TIN is mandatory for getting electricity connections but people in many cases don’t file income tax returns.
Under the proposed system, the abovementioned two types of consumers will have to submit a copy of TIN with their electricity bills to the electricity distribution companies.
The power supply companies will verify the authenticity of the TINs submitted with the NBR’s electronic TIN or E-TIN database.
The NBR database will generate a track number against the TINs and the number will help the NBR to trace the TIN holders to check whether they file tax returns or not.
News Courtesy: www.newagebd.net