Published in The Financial Express on Saturday, 12 March 2016
Savers take detours to dodge investment limit
Limited investment options, higher yield rates are the reasons
Investors are learnt to have put their money in national savings certificates beyond the permissible limit in different names mainly due to limited options of investment.
According to officials and investors, people usually choose to keep their money in the state-run savings certificates as these schemes are risk-free and profitable.
According to some officials and sector insiders, people are getting opportunities to invest in the certificates in different names in the absence of a mechanism from the authorities concerned to check the same.
When asked whether the government had any plan to make use of Taxpayers’ Identification Numbers (TINs) mandatory during purchase of savings schemes, officials said so far there was no such initiative in this regard.
Responding to another query, a senior official at the Department of National Savings (DNS) said they also had no immediate plan to raise the investment ceiling.
However, experts said, without development of sufficient areas of investment, it would not be possible to reduce pressure on government savings instruments. Mechanisms like use of TIN can help in detecting the actual holders of the savings tools.
Presently, the DNS is offering the highest rates of yield, up to 11.76 per cent, while banks are giving the rates of return up to 7.0 per cent on fixed deposits. Some banks are even offering 4.0 per cent return on savings deposits.
Every savings certificate has an investment limit. One can invest maximum Tk 5.0 million (50 lakh) in any pensioner’s scheme.
Ayezuddin Ahmed, director (admin) of the DNS, admitted that they also came to learn the people were purchasing savings certificates, especially Family Savings Certificates (FSC) in different names. They were putting money in the savings tools in the names of their several female family members.
He said it was not a violation of existing rules. “Anyone can buy the certificates in his name or in the names of their children or wives maintaining the ceiling and other procedures.”
When asked, the DNS official said the government had no plan immediately to increase the investment limit and make the use of TINs mandatory for the savers.
Shabbir Ahmed, first secretary for income tax policy at the National Board of Revenue (NBR), said as the tax at source was imposed on savings certificates, the NBR had no problem with it.
“We will think about whether we can introduce the TIN in this sector or not,” he said.
Economist Dr Mustafa K Mujeri said currently people have money but no potential sector to invest in. So, they were rushing to state-owned savings certificates considering their attractive rates of return.
“If the share market is profitable or new sectors are developed for small and medium investors, the rush for savings certificates will be reduced,” he said.
He, however, said instruments like TIN would not be very helpful in detecting real beneficiaries, as getting any TIN is not very tough. Besides, family members also can have TINs.
Additional director for research at the Centre for Policy Dialogue (CPD) Khandaker Golam Moazzem said TINs can help in finding out actual investors. But only this tool will not work. The government should introduce more areas of investment.
In the wake of the higher rates of yield the government’s net borrowing from national savings instruments during the seven months of July-January of the current fiscal exceeded the entire fiscal’s target.
The net sales of savings certificates stood at Tk 166.02 billion in the seven months of the fiscal year (FY) 2015-16, against the target of Tk 150.00 billion, set earlier by the finance ministry, the DNS figure revealed.
The DNS data showed that the interest payment also increased during the period. It stood at Tk 61.30 billion for the period against Tk 53.71 billion in the July-January period of the FY 2014-15.
If the trend of sales continues, at the end of the current FY, the net borrowing may stand at more than at Tk 250 billion which will be substantially higher than that of the target, sector insiders have observed.