The government plans to exempt the existing excise duty on depositors' and foreign lenders' accounts that hold foreign currency deposits in offshore banking units, aiming to attract foreign direct investments (FDIs) and alleviate the country’s ongoing forex crunch.
The National Board of Revenue (NBR) is considering providing the exemption in FY2024-2025 to encourage depositors to keep their foreign currency in offshore banking accounts amid the crisis, finance ministry officials said.
Offshore banking was introduced in Bangladesh in 1985 through a circular from the Bangladesh Bank, primarily aimed at enhancing financing opportunities in Export Processing Zones (EPZs).
Currently, the excise duty for offshore banking deposits is the same as for deposits in other banking units.
However, the excise duty on regular deposits may also be increased and rationalised in the upcoming FY25.
Excise duty on deposits may be rationalised
No excise duty is currently applicable on balances up to Tk 1 lakh annually. In FY25, the excise duty of Tk 150 on deposits above Tk 1 lakh to Tk 5 lakh and Tk 500 on deposits above Tk 5 lakh to Tk 10 lakh may remain unchanged.
Currently, depositors pay Tk 3,000 as excise duty on balances above Tk 10 lakh to Tk 1 crore. However, the government plans to split this range into two parts to address the inequality between low-medium income groups and high-income groups.
The excise duty of Tk 3,000 may remain unchanged for deposit balances above Tk 10 lakh to Tk 50 lakh, but it may be increased to Tk 5,000 for balances above Tk 50 lakh to Tk 1 crore.
Currently, an excise duty of Tk 15,000 is deducted on bank deposits above Tk 1 crore to Tk 5 crore. This range may also be split into two parts.
The duty may be increased to Tk 20,000 for deposit accounts with balances above Tk 2 crore to Tk 5 crore, while it may be decreased to Tk 10,000 for balances above Tk 1 crore to Tk 2 crore. The existing excise duty of Tk 50,000 on balances above Tk 5 crore may remain unchanged, officials said.
Earlier in the 2023 budget, the government increased the excise duty on the higher ceiling of bank deposits by Tk 10,000, from Tk 40,000 previously.
The NBR collects the duty on the principal amount of deposits. However, these excise duties on deposits in offshore banking units of banks may be fully exempted.
Since its inception, offshore banking has gained popularity among businesses and banks in Bangladesh for attracting international settlements and providing foreign currency financing facilities.
Currently, nearly all large banks engage in offshore banking, focusing on discounting import and export bills and offering long-term foreign currency financing to corporations.
At present, offshore entities hold approximately $6 billion in funds from Bangladeshi banks. If these funds are repatriated, it will boost the domestic dollar liquidity of the banks.
Traders benefited from buyer's credit facilities for short-term foreign loans, amounting to $9.56 billion in 2022.
However, the outstanding balance of this loan had dropped to $6.47 billion by the end of November 2023, according to a central bank report.
