The sector got slapped with measures that would discourage large deposits and it did not get the corporate tax reduction it had hoped for
Although the banking sector is in the driving seat of supporting the pandemic-hit economy by funding stimulus packages and the budget deficit, it did not get any incentives in the proposed budget for FY2020-21.
On the contrary, the sector got slapped with measures that would discourage large deposits and it did not get the corporate tax reduction it had hoped for.
Finance Minister AHM Mustafa Kamal on Thursday proposed increasing excise duty on deposits above Tk10 lakh in the budget at a time when banks are facing deposit withdrawal pressure amid loss of incomes during the pandemic.
On the other hand, banks had been demanding a reduction in corporate tax as the lending rate cap had already severely impacted their profits. But the finance minister had his own plans, as is evident in the proposed budget submitted yesterday.
Even though the budget allows for investing black money in deposits and other financial schemes for the first time, it will not result in much due to the anti-money laundering laws in place.
All these disadvantages for the banking sector will ultimately hurt private sector credit growth, which will in turn slow down employment generation.
"Charging excise duty on Tk10 lakh and above will discourage people from depositing their money into the banking system. The move also goes against the digital transaction and cashless effort," said Ali Reza Iftekhar, chairman of the Association of Bankers, Bangladesh (ABB) and managing director of Eastern Bank Limited (EBL).
The excise duty is not ideal in this emergency period as it will discourage large depositors from parking money with banks, said Prime Bank Managing Director Rahel Ahmed.
He added that a corporate tax cut is much needed for the banking sector as implementation of the 9 percent interest rate, coupled with the pandemic, has drastically eroded the profitability of banks.
Reduction of corporate tax would give some relief to the sector, Rahel said.
Though liquidity will not be a problem in the next year to mitigate the high borrowing target, the private sector will remain deprived, he further said.
Rahel Ahmed explained that this is because as the banking sector did not get any incentive, banks will prefer to invest in government treasury bills and bonds instead of taking risks by lending to the private sector.
In the budget for the next fiscal year, excise duty has been proposed to be increased from Tk2,500 to Tk3,000 in cases where the balance exceeds Tk10 lakh, but does not exceed Tk1 crore.
In cases where the balance exceeds Tk1 crore, but does not exceed Tk5 crore, excise duty has been proposed to be increased from Tk12,000 to Tk15,000.
Where the balance exceeds Tk5 crore, excise duty has been proposed to be increased from Tk25,000 to Tk40,000.
But the applicable excise duty rates will remain unchanged in cases where the bank account balance does not exceed Tk10 lakh at any time during a year.
The finance minister also proposed allowing black money to be invested in all financial schemes and instruments – subject to payment of 10 percent tax – in the budget for the 2020-21 fiscal year.
Black money can be invested in cash, bank deposits, financial schemes and instruments, all kinds of deposits, and savings instruments or certificates, according to the proposed budget.
This is the first time the government has allowed black money to be deposited in banks as the sector is under liquidity pressure with the burden of funding stimulus packages and a high bank borrowing target.