First News
Volume:7, Number:49
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Business & Finance 1

Squeezing the Lemon Dry

The new excise duty on bank deposits may earn an amount between BDT8 billion and BDT9 billion for the government, but it will badly hurt lower- and middle-class depositors

| Monowar Hossain |

Not stating the unattainable revenue target and high uncertainty in implementation of the budget announced for the year 2017-18, the hammer of the measures suggested for revenue mobilization from bank account head in the budget will hit hard the common citizens holding small accounts.

The suggestion for enhancing excise duty in substantial amount from the present level on the current balance of bank accounts has already unnerved the lower as well as general middle class segment of the society as they do not find answer as to how to survive in a situation where no corner shows hope of living, maintaining the lowest possible standard. The common people from lower and general middle classes are already in a difficult position, finding that their savings for rainy days in the national savings certificates (sanchay patra) are not giving enough yield to have a minimum standard of living. Phase-wise, interest rate on that has been reduced over the past several years, thus eliminating the shelter that the fixed income group and retired persons had taken in them to lead a modest possible life. The interest rates on fixed and saving deposits have been cut down to a level that do not generate interest in common people to keep their money in banks. It is to be noted that the tax on interest accrued on deposit is in force for quite a long time. The latest suggestion is to impose excise duty on the current balance.

The excise duty as proposed or suggested on the bank balance reads "BDT800 instead of existing BDT500 in cases where the balance, whether debit or credit, exceeds BDT100,000 but does not exceed the limit of BDT1 million. Similarly, BDT2,500 will be imposed instead of existing BDT1,500 where the balance exceeds BDT1 million but does not exceed the limit of BDT10 million; BDT12,000 will be imposed instead of existing BDT7,500 in cases where the balance exceeds BDT10 million but does not exceed the limit of BDT50 million and BDT25,000 will be imposed instead of existing BDT15,000 in cases where the balance exceeds BDT50 million." An earlier information has it that the bulk majority of bank account holders (82 percent or more) fall within the limit of BDT1-million balance. And these accounts are owned by the people belonging to the lower and middle class segments of the society. So, nobody can deny that the suggestion to impose excise duty on bank balance will hit them straight and hard.

The comments or reactions of the top executives of the banks, researchers, and analysts engaged in fiscal and monetary policy affairs, policy research institutions and think tanks and veterans in the financial sector to the proposed measure as suggested in the budget statement are: (1) the lower and general middle class segments would face a very hard situation if the measure as suggested is implemented; (2) this will discourage deposit thus savings; (3) this is a retrogressive step; (4) this would promote germination of black money; (5) push down the efficiency of public sector banks further; (6) transfer through banking channel would fall; and (7) it will affect transparency in transactions, causing the government to lose an avenue to borrow to meet its own needs, etc.

A source involved in the budget making process said that by imposing the new excise duty, the government might earn an amount between BDT8 billion and BDT9 billion. But this measure would severely hurt the account holders whose deposit or transaction is within the limit of BDT1 million, and all these accounts belong to the lower and general middle classes. The philosophy behind the proposal is understandably to turn depositors to the capital market, which in the present scenario has no possibility to become highly vibrant in next 10-12 years. It is because general people have lost confidence in the market for various reasons, explained a former executive of the Securities and Exchange Commission (SEC) and a monetary policy planner. One cabinet minister with a long political background expressed his dismay at the decision, saying the proposal is the outcome of imprudent thinking of some people in the government. The general middle class play an effective role in mobilizing and multiplying public opinions in the general or any other elections. There is no doubt that the measure, if implemented, will have an adverse impact on the general voters. There is still time to withdraw such a suicidal decision, he added.

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