ON account of the recent changes in tax rules applicable on National Savings Certificates (NSC), some serious questions have arisen. Answers to them are really important because millions of investors are concerned. They have invested the bulk of their lifelong savings and retirement benefits into such schemes, but are now shocked because of the exorbitant increase in taxes.

This is disappointing because profits given were barely keeping the real value of the investments intact in most cases. There have been several years when inflation has been more than even the gross return. Thus real return was negative.

In such cases, tax was paid despite loss to the investor. In normal times (e.g. with return of 8pc and inflation of 6pc) the real interest is around 2pc only, hence, actual tax was already equal to 50pc of net income (10pc of gross). This is now 87.5pc (1.75pc divided by 2pc)!

Is it right to arbitrarily increase taxes on an already highly taxed income, just to force investors to file return when they mostly have no other source of income? It is highly unlikely that any businessmen invest in such schemes, because they get much higher returns by investing in own businesses.

How is distinction between filer and non-filer justified when the tax on such schemes is considered ‘final tax’ under the rules, with no possibility of claiming deductions for cost of funds etc by filing a return?

Is it justified to levy an additional tax, with retrospective effect of up to 10 years in the past? DSCs and SSCs maturing now are being taxed at new rates on the entire income for the period of investment even if maturity is just one day after the introduction of the new rule.

Can rates be changed drastically as has been done now? Last year the tax was increased by 50pc and now it is 75pc higher!

If yes, can the rates be also changed for certificates now being issued under new rules, for this or other unknown reasons, or can investors assume that the net return assured at present will actually be paid on maturity?

A retired senior citizen

Karachi

Published in Dawn, August 28th, 2015

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