BAB for withdrawal of enhanced excise duty on deposits

The Bangladesh Association of Banks (BAB), an advisory service organization for the private commercial banks, has requested the finance ministry to withdraw the proposed hike in excise duty on bank deposits in the budget for the next fiscal year.

BAB made the request to finance minister AHM Mustafa Kamal through a letter issued on Wednesday (June 17). Copies of the letter have also been sent to the Finance Secretary, Governor of Bangladesh Bank and Chairman of the National Board of Revenue.

The letter, signed by BAB chairman Nazrul Islam Mazumder said, depositors may turn away from banks if the proposed excise duty rate is implemented.

Banks will face a crisis of funds and depositors who depend on interest incomes from their deposits would be discouraged to invest in banks, added the letter.

The letter said depositors’ savings or deposits are considered as the driving force for the banking system. As a financial intermediary, banks conduct their activities through investments in accordance with the rules from the collected deposits.

It also said the accumulation capacity and propensity of ordinary depositors have already declined at a significant rate due to the ongoing coronavirus crisis.

Moreover, as per the instructions of the central bank, the interest rate on all types of loans has been increased to 9 percent from April 1, which prompted banks to reduce interest rates on deposits at a significant rate in order to reduce the cost of funds due to lower interest rates.

Therefore, it is feared that if the excise duty is increased, the depositors will turn away from the bank.

The finance minister has proposed to increase excise duty from 20 to 60 percent on bank accounts with a turnover of more than Tk 10 lakh a year. This proposal was made in the proposed budget of FY 2020-21. The issue has been criticized since the proposal to increase excise duty in the budget.