NBR plans to raise excise duty exemption on bank deposits to Tk5 lakh

Highlights:

• Tk3-5 lakh deposits subject to annual excise duty of Tk150
• 40 lakh account holders could benefit from exemption
• Potential revenue loss for govt estimated at Tk200cr
• Experts slam the duty as 'unjustified' duplication
• They argue deposits already subject to income tax and VAT

The National Board of Revenue (NBR) is planning to raise the exemption limit for excise duty on annual bank deposits to Tk5 lakh from the existing Tk3 lakh, a move aimed at easing the tax burden on small depositors. 

Currently, deposits between Tk3 lakh and Tk5 lakh are subject to a nominal excise duty of Tk150.

According to Bangladesh Bank data, approximately 40 lakh account holders maintain deposits in the Tk3-5 lakh range. If the exemption is implemented, these depositors would benefit from the new relief, though the government could face a revenue shortfall of around Tk200 crore, NBR sources said.

Infographic: TBS

Experts argue that imposing excise duty on bank deposits is unjustified. Interest earned on deposits is already subject to income tax, and banks levy VAT on service charges, raising questions about the rationale for an additional excise duty.

During pre-budget discussions last Wednesday, NBR Chairman Abdur Rahman Khan confirmed plans to propose excise duty relief for bank deposits but did not provide further details. 

Speaking to The Business Standard, he said, "We intend to provide relief on excise duty. However, no final decision has been made yet."

NBR officials reportedly discussed the proposal with the finance minister last week, and if the government approves, it could be presented in the budget slated for June. 

A senior NBR officer, speaking on condition of anonymity, explained that deposits up to Tk3 lakh are already exempt and that the plan is to extend the benefit to deposits up to Tk5 lakh.

The officer added, "If implemented, the measure would result in a potential revenue reduction of around Tk200 crore. Our long-term plan is to gradually phase out excise duty on bank deposits altogether."

Md Luftor Rahman, a former NBR member of the Customs Policy wing, criticised the excise duty, calling it unnecessary. "Interest on the same accounts is taxed under income tax, and banks collect VAT on service charges. Collecting excise duty in addition makes little sense," he said.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, said that excise duty is collected for convenience, as banks remit it on behalf of the NBR. He argued that the levy leads to duplication since the same amount can be subject to excise multiple times throughout the year and discourages low-income earners from keeping deposits in banks.

Current excise duty structure

The government has set a target to collect approximately Tk2,000 crore from excise duties this year. Under the prevailing rules, the duty is calculated based on the highest balance reached in an account at any time during the year.

Currently, bank deposits up to Tk3 lakh are exempt from excise duty. Deposits between Tk3,01,000 and Tk5 lakh are subject to a duty of Tk150, while those from Tk5,01,000 to Tk10 lakh incur Tk500. 

Deposits ranging from Tk10,01,000 to Tk50 lakh are charged Tk3,000, and those between Tk50,01,000 and Tk1 crore carry Tk5,000. For deposits from Tk1,01,00,000 to Tk2 crore, the duty is Tk10,000, and for deposits between Tk2,01,00,000 and Tk5 crore, it rises to Tk20,000. Any deposit above Tk5 crore is liable for an excise duty of Tk50,000.