Poor's income not tax-free?:Daily Star

For years, Ferdousi Khatun has toiled as a maid shuttling between houses to make a living. In the hope of securing a better life for her three children, she saved penny by penny from her meagre income, and was able to have a deposit of Tk 1 lakh at a Satkhira branch of a state-run bank. But her savings will not be spared by tax officials despite the fact that her income is tax-free. Worse still, u
nlike the TIN (tax identification number) holders who pay 10 percent of the profits on savings in advance income tax, she will lose 15 percent of the profits for not having TIN. "I have never heard of it [TIN]. Where would I get that? I can hardly run my family with the money I earn. Where will I get money to pay tax?" asked the poor woman. Of the 16 crore people in the country, only 10 lakh submit tax returns. In 1999, the government started collecting 10 percent tax from profits on savings and pension schemes of 1.5 crore savers, including 1 crore small depositors, said officials at Bangladesh Bank and the NBR. Advertisement A provision was introduced in July 2012, stipulating that account holders without TIN must pay 15 percent of the profits in advance income tax. Already hit by falling interests on deposits and high inflation, poor savers like Ferdousi are made to pay advance income tax by the National Board of Revenue (NBR) while tax avoidance by the rich is rife. Ibrahim Khaled, former deputy governor of Bangladesh Bank, questioned the justification for realising taxes from people whose income is below the tax-free ceiling of Tk 2.20 lakh. "This is advance income tax. So, there is no scope for adjusting this tax," he told The Daily Star. He suggested that the government could refrain from imposing any tax on profits from a deposit up to Tk 5 lakh.  "Social security system does not exist in Bangladesh. This tax-free threshold can provide some relief to the old, retired, and physically and mentally-challenged people," Khaled said. Several bank officials said the government will not lose much revenue if it sets a threshold, as only around 10 percent of the total deposits in the banking system belongs to this group. The NBR collected Tk 2,870 crore in advance income tax from these bank accounts in fiscal 2012-13, and collections from poor savers would be below Tk 100 crore. Moreover, banks are cutting interest rates on savings due to weak investment demand, dealing a further blow to small savers. Interest rates on most savings schemes are below 11 percent while those were above 13 percent a year ago. Excess liquidity in the banking system is to blame for that. At the end of May, excess liquidity in banks stood around Tk 140,243 crore, according to the central bank. Requesting anonymity, an official at the Satkhira branch of Agrani Bank said many clients expressed frustration after learning about the bank's circular issued in May. Nazma Khatun, who lives off begging, said she deposited Tk 1 lakh with the bank branch for future benefits of her only son. "I am a physically-challenged poor woman. I live on alms. It was very tough for me to save the money," she said.   The Agrani bank official said demand for loans was very low as the banking system sat on excess liquidity. To reduce its losses, Agrani Bank was using various excuses to close its savings schemes with high interest rates.   Another such victim is Rowshan Ara Begum, who works at a government agency in the capital.  As her six-year scheme matured early this year, she went to the bank to withdraw the money. The bank deducted 15 percent tax on the profits from her savings as the mother of two, whose income is tax-free, didn't have a TIN. Bankers said many customers were dissatisfied over the issue and the banks had conveyed it to Bangladesh Bank. When the NBR introduced the policy, the banks requested the central bank to reconsider the decision, as many depositors don't have TIN certificates. Asked, former NBR Member Syed Aminul Karim said all depositors pay advance income tax but many of them don't submit their income tax returns to the NBR. "The rules aim to motivate them to be tax compliant voluntarily." Aminul said most of those who make fixed deposits are rich and able to pay tax. "The depositors will get refunds if they pay more taxes than they are required to." He, however, admitted that there should be a threshold for those who save money in the DPS.