The net sales of national savings certificates increased by 7.33 percent or Tk 3,409.18 crore year-on-year in last fiscal year (2018-2019) due to savers’ NSC buying spree to get high returns.
Although the government has been pressing all the scheduled banks to bring down interest rate on deposit to 6 percent, kept the interest rate of NSCs unchanged, contradicting it’s policy to cut the banks’ lending and deposit rates to single digit, said officials of banks.
In FY19, the government’s net sales of savings certificates stood at Tk 49,939.48 crore against the net sales of Tk 46,530.30 crore in FY18.
In June, the net sales of NSCs increased to Tk 3,208.23 crore against Tk 3,166.55 crore in the same month last year.
Due to high returns from the NSCs, banks, especially the private commercial ones, have been facing huge liquidity crisis for more than one and a half year as severs prefer the NSCs to banks’ deposit products to get high returns, the officials said.
The government is giving interest at the rates between 11.04 percent and 11.76 percent against the NSCs. On the other hand, some banks are offering as low as 3.4 percent while the majority of the banks are offering 6-8 percent interest against their fixed deposit products.
As a result of higher returns on NSCs, the country’ banking sector has been going through a severe credit crisis, said BB officials.
While unveiling the FY20 monetary policy statement on July 31, BB governor Fazle Kabir denied any liquidity crisis claiming that the banking sector had Tk 85,616 crore in excess liquidity.
He said there was liquidity mismatch in the sector.
Besides the high interest rates on NSCs, the government has been offering tax rebate against the investments in NSCs, encouraging a section of savers to purchase the instruments.
According to the Income Tax Ordinance-1984, an individual taxpayer can get income tax rebate at the rate ranging from 10 percent to 15 percent by making investment in and donation to 23 sectors including NSCs, deposit pension schemes in banks, capital market and paying premium for life insurance.
A taxpayer can claim the rebate on investment of up to 25 percent of his or her total income excluding tax-exempted income and income enjoying reduced rate or Tk 1.50 crore, or actual investment, whichever is lower.
The National Board of Revenue offers tax rebate at the rate of 15 percent if the eligible amount of investment remains below Tk 10 lakh and the rate of rebate becomes 10-12 percent if eligible investment amount is higher than Tk 10 lakh.
In these contexts, the government has initiated a move to review the existing income tax rebate against investments in NSCs and to rationalise the scheme.
Under the move, the Cash Debt Management Committee of the finance ministry in May this year made a decision to review the policy and asked the NBR to implement the decision.
In the FY20 budget, the government refrained from reducing the interest rates against investments in NSCs but imposed additional 5 percent taxes on the interest income from NSCs, taking the total tax to 10 percent from 5 per cent.
The government, however, kept tax rate on returns against investment up to Tk 2.5 lakh in NSCs unchanged at 5 percent.
At the end of FY19, the outstanding sales of NSCs reached Tk 2,87,706 crore from Tk 2,37,766.52 crore at the end of June last year.
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