The Bangladesh Association of Banks (BAB), a forum of directors of banks, has urged the finance ministry to withdraw the proposed hike in excise duty on bank deposits in the budget for the next fiscal year.
The association placed the demand before Finance Minister AHM Mustafa Kamal through a letter on Monday.
In the letter, BAB Chairman Nazrul Islam Mazumder said if the enhanced excise duty was implemented, depositors might turn away from banks, thus aggravating banks’ woes further in the current critical time of the pandemic.
The enhanced duty would lead to another crisis for banks and depositors, as a large number of bank depositors were dependent on interest incomes derived from their deposit schemes, added the letter.
“Depositors will be discouraged from parking their funds in the banks,” Nazrul Islam Mazumder said.
BAB requested the government to reconsider the new excise duty rates in the final budget through taking the interests of depositors into consideration in these hard times of the coronavirus pandemic.
The letter also mentioned that the deposit capacities of ordinary depositors had already declined alarmingly due to the hit on the economy by the prolonged pandemic.
On the other hand, banks were being forced to cut interest rates on deposits in order to reduce the cost of funds, as banks had implemented single digit interest rates against loans and advances, the letter noted.
The current deposit flow of banks had already dwindled by 20% to 30% due to the decline in business activities, Nazrul Islam Mazumder pointed out in the letter.
“As a result, the liquidity crisis in the banking sector will increase afresh,” wrote Mazumder, who is also Chairman of Exim Bank.
Senior bankers are also of the opinion that if the excise duty was increased, depositors would feel discouraged about depositing money in the banking system. People would prefer to stash their money away in lockers in their homes.
Currently, the National Board of Revenue (NBR) charges excise duty in case balance in any bank account that exceeds Tk100,000 at any time in a year. Beginning from Tk150 per account for balance over Tk one lakh at any time, the rate of excise duty goes up to Tk25,000 per account if the balance, whether credit or debit, exceeds Tk5 crore at any time during a year.
However, on June 11, Kamal proposed a massive hike in excise duty for bank accounts with a balance of more than Tk5 crore --- from the previous Tk25,000 to Tk40,000 --- in his budget speech for FY21.
In case of a balance of over Tk1 crore but less than Tk5 crore, duty was proposed to be raised from Tk12,000 to Tk15,000.
Excise duty on bank accounts with balances over Tk10 lakh but less than Tk1 crore has been proposed to be increased to Tk3,000 from the existing Tk2,500.
However, excise duty on accounts with balances less than Tk10 lakh has been proposed to remain unchanged.
Excise duty for account balances of up to Tk10 lakh have not been changed in the draft budget to give relief to lower middle-income people, said a high official at the finance ministry.
The NBR collected Tk1,285 crore in excise tax from bank balances in fiscal 2017-18, down from Tk1,295 crore a year earlier, as per NBR data.
"We have seen that most of the excise duty comes from accounts with high bank balances and we expect that the measures to hike excise duty will bring in an additional couple of hundreds of crores in revenue in FY21,” said a high official at the revenue board.
Until December 31 last year, there were 10.65 crore bank accounts, with Tk12.14 lakh crore in balance, as per central bank data.
