Finance ministry recommends pension scheme source tax withdrawal

The finance ministry has recommended the withdrawal of income tax and excise duty at the source on bank accounts of the Universal Pension Scheme.

In a recent letter to the National Board of Revenue (NBR), the finance ministry mentioned that a notification was issued on 31 October 2023, exempting pension scheme contributions from tax and pension income from tax.

At this stage, it is necessary to waive income tax and excise duty on bank accounts of the Universal Pension Scheme operated by the National Pension Authority in state-owned and commercial banks, it added.

This is because the pension will be paid in the form of an annuity, including the profit earned through the investment of the funds deposited by the contributors participating in this welfare programme of the pension scheme, as the letter further stated.

The finance ministry's letter to the NBR followed another letter written to the finance secretary by the National Pension Authority seeking the withdrawal of the source tax and excise duty.

Currently, excise duty is deducted on the basis of bank account balances, irrespective of individual, company, or fund. No excise duty is deducted if the bank balance is up to Tk1 lakh. Banks collect excise duty of Tk150 for balances up to Tk5 lakh, Tk500 for balances from Tk5 to 10 lakh, Tk3,000 for balances from Tk10 lakh to Tk1 crore, Tk15,000 for balances from Tk1 to 5 crore, and Tk50,000 for balances over Tk5 crore and deposit it in the government treasury.

Excise duty is levied on the highest balance at any time of the year. Meanwhile, 10% income tax is deducted at source on interest income from bank deposits or interest income from savings certificates. If the taxpayer does not submit the return deposit slip, then 15% tax is deducted at source.

On 2 October, 2023, a news article titled "Stakeholders seek NBR clarification over tax exemption on Universal Pension investment" was published in the Business Standard newspaper.

The article stated that there was a legal complication regarding the participants getting tax exemption against the contributions paid due to the non-mention of pension scheme contributions in the Sixth Schedule (Tax Exemption, Concession, and Credit) of the new income tax law.

In response, the NBR issued a notification on 31 October 2023 exempting pension scheme contributions from income tax and pension income from tax.