Increased tax takes a toll on NSC sales

Sales of savings certificates dropped by 57 percent in July 2019 compared to the corresponding period of the previous year as savers are now rushing to banks to park their money following an increase in tax on income from the savings tools.

In July, the first month of the current fiscal year, the government sold National Savings Certificates (NSCs) worth Tk2,160 crore against Tk3,036 core in the same month last year, according to a report of Department of National Savings.

In the budget for FY2019-20, the government the government increased the tax at source on savings instruments by two fold to 10 percent, irrespective of investment ceiling, to make it consistent with the bank interest rate.

Besides, providing tax identification number (TIN) has been made mandatory for buying NSCs amounting to more than one lakh. Also, buyers now have to do all transactions of savings tools through banks.

In recent years, sales of NSCs have increased rapidly. Therefore, to discourage savers from buying savings tools, bankers and economists had long been urging the government to reduce interest on savings certificates.

The government, instead of lowering the interest rates, has, however, come up with some strict regulations in buying the certificates.

Meantime, the fall in sales of savings certificates has come as a blessing for the banks as deposits growth saw surge in recent months, easing liquidity crisis in the sector.

In the FY2018-19, the bank deposits growth was 10 percent compared to the previous fiscal year. The amount of deposits in banks stood at Tk10,65,322 core.

In the last fiscal year, the government sold savings tools worth Tk90,280crore. As the borrowing target was fulfilled by selling the savings instruments, the government did not need to go to banks.

However, because of the fall in NSC sales and to meet the expenditure this year, the government borrowed a record Tk26,000 crore plus from the banking system in the first one and a half months of the current fiscal.

This sum accounts for 45 percent of the overall target set in the national budget for the ongoing fiscal. 

The amount of debt taken by the government in this period is only Tk197 crore less than the amount which had been taken in the 12 months of the previous fiscal.  

To meet the budget deficit, the government takes loans in two ways. One of these is foreign aid, the other is domestic source. Loans are taken from banks and NSC as internal sources.

Savings certificates are considered a form of loan for the government because it has to pay monthly interest to savings certificate holders.