Financial Times

Depositors are alarmed at banks and finance companies asking them to submit their tax details to the Inland Revenue following the recent amendment to the budget proposal on interest income in deposits.

“It was proposed that an individual’s aggregate interest income over Rs.9,000 generated from all accounts such as fixed deposits and savings accounts of all branches of a particular deposit taking institution will be subjected to 10 percent withholding tax (WHT). However, we said that this is not possible, because many banks do not have an advanced computer system to collect such data,” Upali de Silva, President, Association of Professional Bankers’ said.
He said if a customer's interest income is within Rs. 9,000 only and if the customer has not made a declaration to the Department of Inland Revenue to that effect, he will be taxed WHT, even when his interest income per deposit exceeds Rs.1,000. “Below Rs.1, 000 interest income will not be taxed,” he added.

N.R. Gajendran, Partner at chartered accountancy firm, Gajma and Company said that it is still an unfair presentation because the depositors are taxed further. “The main relief is for the deposit taking institution because they will not have to ‘hunt’ for customer information from all branches, but only from a particular branch. However, it is an unfair preposition for depositors especially pensioners and low income earners,” he explained.

He said that the original issue is the tax anomaly between the tax free allowance of Rs.25, 000 and the tax free interest income of Rs.9, 000. “There is a glaring mismatch between the two amounts, which the authorities have still not been able to rectify,” he said.

Some banks said that their customers have been inquiring after the new law and were very disturbed. “Some customers visited the branch to find out the truth about the matter,” a commercial banker said. M. Gunaratne, a former government servant writing to The Sunday Times FT said that the new tax affects the human rights of ex-employees of government organisations who are not covered by pension schemes.

“The situation becomes most unfair since most such people suffer from diabetes, high blood pressure and arthritis which calls for expensive medical treatments,” he said.