What is Excise Duty in Bank 2024?

Introduction

Excise duty is a type of indirect tax that we pay on specific goods and services, including many transactions in the banking sector. For our banks, this means excise duty gets applied to a range of services such as deposits, loans, and credit card transactions. It's important for both the banks and us, the customers, to understand how this tax works and how it affects our banking activities. In this article, we’ll take a closer look at what excise duty is, how it applies to our bank transactions, and the impact it has on customers in Bangladesh and other countries.

How Excise Duty Applies to Banks

Excise duty affects a variety of financial transactions in banks, impacting both deposit and loan accounts. Here's a closer look at how it typically applies:

Types of Transactions Subject to Excise Duty

1. Deposits: Excise duty is charged based on the highest balance in deposit accounts, such as savings or fixed deposits, during a financial year.
2. Loans: This duty also applies to loan accounts, with charges based on the outstanding loan balance.
3. Credit Cards: Transactions involving credit card usage are subject to excise duty, calculated on the highest outstanding balance.

Examples of Applicable Services

• Account Maintenance: Regular maintenance of savings and current accounts.
• Loan Processing: Excise duty on the processing and maintenance of loan accounts.
• Credit Card Services: Charges on the outstanding balances of credit and prepaid cards.

By applying excise duty to these transactions, the government ensures a steady revenue stream while regulating the financial activities within the banking sector.

Current Rates and Regulations

Below is a bar chart representing the current excise duty rates for various account balances in Bangladesh:

This chart visually represents the excise duty rates based on different account balance ranges:

• BDT 0 to 100,000: Nil
• BDT 100,001 to 500,000: BDT 150
• BDT 500,001 to 1,000,000: BDT 500
• BDT 1,000,001 to 5,000,000: BDT 3,000
• BDT 5,000,001 to 10,000,000: BDT 5,000
• BDT 10,000,001 to 20,000,000: BDT 10,000
• BDT 20,000,001 to 50,000,000: BDT 20,000
• Above BDT 50,000,001: BDT 50,000

These rates apply to both deposit and loan accounts, as well as credit card balances. The regulations are periodically reviewed and updated by the National Board of Revenue (NBR) to align with fiscal policies and economic conditions.

• Excise Duty will be applicable for both debit or credit balances.
• Day end balance will be considered to calculate the highest balance in a single day

Govt. Excise Duty:?SRO (Statutory Regulatory Order) No. 136-Law/2024/242-Excise Dated 27 May 2024.        

View Circular

These rates apply to deposits, loans, and credit card balances. The government regularly reviews these rates to ensure they fit with current fiscal policies and economic needs.

Impact on Customers

The imposition of excise duty on bank transactions has several implications for customers. Understanding these impacts can help individuals and businesses manage their finances more effectively.

Financial Burden

• Increased Costs: Customers with higher account balances or outstanding loans may face significant annual excise duty charges, adding to their overall financial burden.
• Reduced Savings: Excise duty on deposits can reduce the effective savings of customers, particularly those with large balances, as a portion of their interest earnings will be offset by the duty.

Account Management

• Strategic Balances: To minimize excise duty, customers may need to strategically manage their account balances, keeping them below certain thresholds where possible.
• Loan Considerations: Borrowers might reconsider the amount of loan they take out or the duration, factoring in the additional cost of excise duty on their loan balances.

Behavior Changes

• Alternative Investments: Higher excise duty rates may prompt customers to seek alternative investment options outside the traditional banking system to avoid these charges.
• Increased Awareness: Customers are likely to become more aware of their financial activities and account balances to manage and minimize excise duty liabilities.

Financial Planning Tips

• Regular Monitoring: Regularly monitor account balances and transactions to stay informed about potential excise duty charges.
• Consult Financial Advisors: Seek advice from financial experts on how to optimize account management and minimize excise duty impacts.
• Utilize Bank Services: Take advantage of bank-provided tools and services that help in managing accounts more effectively, ensuring that balances are maintained strategically.

By understanding the impact of excise duty and adopting effective financial strategies, customers can better manage their finances and minimize the additional costs associated with this tax.

In Bangladesh, the implementation of excise duty on bank transactions has significantly impacted both the banking sector and its customers.

Implementation and Compliance

• Bank Obligations: All banks in Bangladesh must deduct excise duty from customer accounts and send it to the government.
• Customer Notification: Banks notify customers about excise duty deductions through statements, emails, and SMS alerts. For example, HSBC sends these notifications to comply with the rules.

Comparison with Other Countries

• India: India, like Bangladesh, has excise duty on certain financial transactions, but the details and rates vary.
• Pakistan: Pakistan has a broader range of financial services covered by excise duty, often with higher rates than Bangladesh.
• Malaysia: In Malaysia, excise duty is more focused on specific goods rather than financial transactions, so the banking excise duty structure is less significant.

Effects on the Banking Sector

• Revenue Generation: Excise duty is a crucial source of revenue for the government, helping fund various public expenses.
• Customer Behavior: The higher rates of excise duty have caused customers to change their behavior, with many trying to manage their account balances to minimize duty payments.

Industry Perspectives

The perspectives on excise duty within Bangladesh's banking industry vary, reflecting the views of financial institutions, regulatory bodies, and customers. Here's a closer look at these different viewpoints.

Views from Banking Professionals

• Association of Bankers Bangladesh (ABB): The ABB has been very vocal about reconsidering the imposition of excise duty on loans and credit cards. They argue that these duties raise borrowing costs, discouraging customers from taking loans and using credit services. This could potentially slow down economic growth, as credit is crucial for business expansion and personal finance management. (Daily Messenger)
• Bank Executives: Many bank executives point out the administrative burden of excise duty compliance. The process of calculating, deducting, and remitting the duty requires significant resources and complicates financial operations. They suggest that a simplified tax regime could enhance efficiency and customer satisfaction.

Recent Proposals and Industry Requests

• Reduction of Corporate Income Tax: Besides seeking the withdrawal of excise duty on loans and credit cards, banking professionals have proposed reducing the corporate income tax rate from 37.5% to 30%. They believe this reduction would boost profitability, allowing banks to reinvest in technology and customer service improvements. (Financial Express)
• Lobbying for Policy Changes: The banking sector continues to lobby the government for a more favorable tax environment. This includes adjustments to excise duty and broader tax reforms to enhance the competitiveness of Bangladeshi banks in the global market.

Regulatory Body Perspectives

• National Board of Revenue (NBR): The NBR argues that excise duty is essential for revenue generation, helping fund public services and infrastructure projects critical for national development. The NBR also stresses the importance of compliance to ensure a fair and transparent financial system.
• Government Response: While acknowledging the concerns raised by the banking sector, the government emphasizes the importance of maintaining fiscal stability. Excise duty is one mechanism to ensure the government meets its financial obligations without overly burdening other sectors.

Customer Feedback

• Awareness and Dissatisfaction: Many customers express dissatisfaction with excise duty, especially when it applies to both deposit and loan accounts. They call for greater transparency and justification for these charges, as well as more customer-friendly policies that minimize the financial impact on individuals and businesses.
• Adaptation Strategies: Customers are increasingly adopting strategies to manage their finances in light of excise duty. This includes maintaining lower account balances, exploring alternative investment options, and seeking financial advice to optimize their tax liabilities.

Conclusion

Excise duty on bank transactions plays a crucial role in Bangladesh's financial landscape, affecting both financial institutions and their customers. This indirect tax, imposed by the National Board of Revenue (NBR), is a vital revenue stream for the government, funding essential public services and infrastructure projects. However, it also presents challenges and financial burdens for banks and account holders.

Understanding the specifics of excise duty, including the rates, applicable transactions, and broader implications, is essential for effective financial planning and management. Customers must be aware of how excise duty impacts their savings, loans, and credit card balances, and adopt strategies to minimize its impact. Financial institutions, meanwhile, must navigate the administrative complexities of excise duty compliance while advocating for regulatory changes that can enhance operational efficiency and customer satisfaction.

The banking industry continues to engage with regulatory bodies, proposing adjustments to excise duty rates and structures to balance the need for revenue generation with economic growth. The perspectives of banking professionals, regulatory authorities, and customers highlight the multifaceted nature of excise duty and the ongoing need for dialogue and collaboration.

By staying informed and proactive, both customers and banks can better manage the effects of excise duty, ensuring financial stability and contributing to the overall economic health of the nation. For customers, regular monitoring of account balances and strategic financial planning are crucial, while banks must continue to seek efficiencies and advocate for favorable policy changes.