Business News

NSC SALES SLUMP BY 60PC IN JULY-AUG ON TIGHTENED PROCESS, INTEREST TAX HIKE

The net sales of national savings certificates dropped by 59.59 per cent year-on-year in the July-August period of the current fiscal year of 2019-2020 because of tightening of sales process and hike in tax on interest.

In July-August of FY20, the government sold NSCs worth Tk 11,305.19 crore against repayment of Tk 7,646.19 crore, taking the net sales of the government’s borrowing tools to Tk 3,659.54 crore against Tk 9,057.24 crore in the same period last year, according to a report of the Department of National Savings. In August this year, the net sales of NSCs dropped by 62.71 per cent year-on-year to Tk 1,499.37 crore after declining by 57.1 per cent to Tk 2,160.17 crore in July this year. In July and August last year, the government’s net borrowing by issuing NSCs was Tk 5,035.74 crore and Tk 4,021.51 crore respectively.

In the first two months, the government paid Tk 4,780.1 crore as interest to the NSC-holders including payment of Tk 112.43 crore through Electronic Fund Transfer system under the newly launched National Savings Scheme Online Management System. Officials of the banks said that the launch of the NSC online management system might be a reason for the fall in NSC sales.

Although the system brought transparency to the NSC management and convenience for the beneficiaries, it forced another section of people especially the high net worth individuals to refrain from excessive purchase of NSCs.

Earlier, it was easy for the individuals to purchase NSCs beyond the allowable limit as there was no integration of the DNS’s system.

Besides, increased rate of source tax on savings tools might be another reason for the sharp drop in NSC sales. In the budget for FY20, the government increased the tax rate by two fold to 10 per cent. However, the tax rate would be 5 per cent, with an effect from August 28 this year, on interest income from investment on NSCs worth up to Tk 5 lakh.

Forced by the fall in NSC sales, the government started relying heavily on bank funds to meet the budgetary expenditure. On the other hand, tax collection of the National Board of Revenue grew by 12.58 per cent against the government’s 16.29 per cent growth target.

As a result, the government borrowing from the banking system stood at Tk 20,658.13 crore in just 86 days of the fiscal year against its repayment of Tk 851.24 crore in the same period last fiscal year. With the borrowing in 86 days of FY20, the government’s outstanding bank borrowing increased to Tk 1,28,753.83 crore on September 24 this year against Tk 89,422.36 crore on September 24 last year. In the budget for FY20, the revenue collection target was set at Tk 3,77,810 crore, leaving deficit at Tk 1,45,380 crore. For deficit financing, the government has planned to borrow Tk 63,848 crore from overseas sources and the rest Tk 77,363 crore from domestic sources mainly banks and saving certificates. In FY19, the government’s net sales of savings certificates reached Tk 49,939.48 crore against the net sales of Tk 46,530.30 crore in FY18.

The government is giving interest at the rates between 11.04 per cent and 11.76 per cent against the NSCs. At the end of August this year, the outstanding NSC sales stood at Tk 2,89,372.45 crore.

Source: New Age, 10.10.2019

Link: http://www.newagebd.net/article/87160/nsc-sales-slump-by-60pc-in-july-aug-on-tightened-process-interest-tax-hike