Keeping money in banks may get costlier

Infographics: TBS

Keeping money in the country's banking system is set to become more expensive as the revenue authorities plan to further increase excise duty on bank balances in the upcoming budget after three fiscal years.

According to finance ministry sources familiar with the matter, the cost may increase by up to 67%. The National Board of Revenue (NBR) last hiked excise duty in the fiscal 2021-22.

Experts oppose this initiative, arguing that it may discourage people from depositing money in banks. They contend that imposing additional pressure on these sectors as an expedient revenue-raising measure would be illogical in the current economic reality.

A senior finance ministry official, speaking anonymously to The Business Standard, said, "There may be a change in the existing excise duty amount on bank balances."

This duty is deducted annually from the bank balance of individuals or entities at a fixed rate, regardless of whether the funds come from a loan deposit.

Currently, no excise duty is applicable on balances of up to Tk1 lakh annually. According to sources, excise duty of Tk150 on balances above Tk1 lakh to Tk5 lakh and Tk500 on balances above Tk5 lakh to Tk10 lakh is expected to remain unchanged. Currently, Tk3,000 is deducted as excise duty on balances above Tk10 lakh to Tk1 crore. This range may be split into two phases: maintaining the same duty for balances above Tk10 lakh to Tk50 lakh initially, and potentially increasing to Tk5,000 for balances above Tk50 lakh to Tk1 crore.

In summary, for those holding money in these ranges in banks, their excise duty is set to increase by about 67%.

Currently, an excise duty of Tk15,000 applies to bank balances above Tk1 crore to Tk5 crore. This range may also be divided into two parts. The duty could rise to Tk20,000 for account holders with balances above Tk2 crore to Tk5 crore, while decreasing to Tk10,000 for balances above Tk1 crore to Tk2 crore.

Sources suggest that the existing excise duty of Tk50,000 on balances above Tk5 crore may remain unchanged.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, told TBS, "Those who have relatively small amounts in banks cannot voice their concerns to the government if excise duty increases in this way. Instead, they express their dissatisfaction with us. For these reasons, some people show a tendency to withdraw money from banks."

"Currently, there is a liquidity crisis. During such times, an increase in excise duty like this can further encourage people to withdraw money, potentially adding a new dimension to the crisis."

Rahman, a former president of the Association of Bankers Bangladesh, also said, "The government should consider other sectors, especially those outside of taxation, through reforms. Without doing so, it would not be reasonable to increase the burden on existing taxpayers, given that people are already grappling with high inflation."  

Former NBR member Syed Md Aminul Karim believes such a decision would be illogical and could have an adverse effect on savings in banks.

"Currently, people are hesitant about depositing money in banks for various reasons; many prefer not to keep it there. In such a situation, an increase in excise duty could negatively impact savings," he told TBS.

He said, "The current rate is already high. Making this decision again will increase the cost of doing business, as many people conduct numerous transactions due to business needs."

Farid Uddin, a former NBR member of VAT policy, told TBS, "When there are ambitious revenue collection targets, such easy collection sources are expanded. This is happening once again. It will harm the economy."

According to Bangladesh Bank data, the number of bank account holders in the country was 15.35 crore as of December 2023.

Of these, approximately 99 lakh account holders have balances above Tk2 lakh and will be subject to excise duty. Additionally, there are 1.17 lakh account holders with balances above Tk1 crore.