Source tax on bank deposit interests of companies to double next year

The government is going to double deduction at source from interests on bank deposits of companies from the next fiscal year with a view to thwarting any possible attempts to evade tax by keeping such savings unreported during returns submission, according to sources at the finance ministry.  

The new budget for FY23 is likely to propose raising the rate of source tax to 20% from the existing 10% from interests on savings deposits, fixed deposits or any term deposits maintained by company taxpayers with any banks or non-bank financial institutions interest, they also said.

The deduction will remain at 10% for individual depositors and public universities or educational institutions whose teachers are enlisted for monthly pay order, while the current 5% source tax will continue to be levied on recognised provident fund, approved gratuity fund, approved superannuation fund or pension fund, ministry officials said.

The companies, which are enjoying tax exemption, will remain out of the purview of the source tax. The source tax cut will not apply to any deposit pension scheme sponsored by the government or by a bank with prior approval of the government. 

If any person or a company fails to furnish proof of income tax return submission, the rate of deduction will be 50% higher, they added. 

Abul Kashem Khan, a trustee of Business Initiative Leading Development (BUILD), told The Business Standard that the NBR is going to double source tax on bank deposit interests to show higher revenue mobilisation before the tax year ends, but such a move will interrupt money flow of companies.   

The source tax hike on deposit interests on the pretext of reining in tax evasion, rather than strengthening its digital ecosystem for the purpose will be unjustified, he noted. 

Overregulation does not allow growth of any sectors, Abul Kashem, also a former president of DCCI said, citing an example of how the booming e-commerce sector has plunged into a fragile condition because of tough regulations following irregularities of some rogue companies, such as E-valy.

Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue, said the source tax will put pressure on companies' total cash flow. So, doubling the source tax will not be logical.

Dr M Masrur Reaz, chairman at Policy Exchange of Bangladesh, said deducting tax at source is contradictory with the basic principles of corporate income tax.

Income tax should be realised after calculating all expenditure, but source tax is deducted at the early stage, he also said, adding that such tax deduction should be abolished.

Source tax or advance income tax blocks a part of capital till it is adjusted after the filing of tax returns to the NBR, he further explained.

In Bangladesh, a number of AITs are not adjusted for a long time, he also said, adding that total tax incidence is already higher in Bangladesh than in neighbouring countries.