The Bangladesh Bank has proposed to cut source tax imposed on interest or profit made through school banking accounts, and requested the National Board of Revenue (NBR) to implement this move in the upcoming budget.
The finance ministry too is viewing the proposal positively, sources have told The Business Standard.
Under the existing regulations, the NBR imposes a 15%-10% source tax on interest or profit made on all bank deposits. Those without a Taxpayers Identification Number/E-TIN pay 15% source tax, while those who have it pay 10%.
Because opening a school banking account does not require an E-TIN number, by default, the students are being charged a 15% source tax on their earnings from interest or profit.
Terming the 15% source tax as a hurdle against popularising the concept of school banking among students, the central bank in November last year sent a letter to the National Board of Revenue – requesting them to bring it down to a rational level for this particular category.
As guardians operate school banking accounts on behalf of their children under the age of 18, 10% source tax can be imposed on accounts operated by a guardian with E-TIN, 15% can be imposed on those without it, the letter proposed.
It added that unless the move is implemented, a guardian with an E-TIN number will not be motivated to deposit money on a school banking account belonging to their children; instead they will use their own account to save money.
A senior official of the Bangladesh Bank, on condition of anonymity, has said the NBR is currently scrutinising their proposal on this issue, and the central bank is optimistic about getting a positive response.
Meanwhile, finance ministry sources have said they are viewing the proposal positively, and in the upcoming budget, source tax will be dropped on interest or profits made through school banking accounts.
Commenting on the issue, Agrani Bank's Managing Director and CEO Mohammad Shams Ul Islam said, "I am welcoming this proposal as this move will help motivate students to save more money.
"The source tax should be imposed at a rate that will help alleviate tax related concerns among students. Today's students will become the taxpayers of tomorrow."
According to a central bank report, the number of school banking accounts has increased by 35% to 2,690,550 last year, compared to 2019. These accounts hold a deposit of Tk1,951 crore. Majority of these accounts and deposits are located in the Dhaka division.
There is little difference between the number of accounts belonging to male and female students. Male students own 56% of the accounts and 55% of the deposits, while female students own 44% and 45% of those respectively.
The lion's share of school banking accounts is in the private banks. The Dutch-Bangla bank (DBBL) holds the most such accounts and deposits. At the end of last year, the DBBL bank held Tk528 crore in 527,397 school banking accounts.