Under the provisions of the proposed Income Tax Bill 2025, individuals earning interest income from fixed deposit (FD) accounts may be subject to a 10 percent final withholding tax. According to the government, this measure is intended to promote tax equity, enhance administrative efficiency, and ensure simplified compliance for taxpayers.
The proposed legislation classifies interest earned on fixed deposits as a form of passive income and recommends that it be taxed through a final withholding mechanism. In practice, this means that financial institutions—such as banks—will be responsible for deducting the applicable tax at source before crediting the net interest to the depositor’s account.
By implementing a streamlined and transparent withholding system, the government aims to broaden the tax base while preserving the convenience and predictability of savings instruments. This aligns with broader fiscal objectives, including enhancing revenue mobilization and promoting a fairer distribution of the tax burden across different income groups. While this will be discussed next week, there are already voices against this.
A corporate official said that the introduction of a tax on interest earned from fixed deposits should be designed to strike a careful balance between promoting financial inclusion, ensuring tax equity, and generating sustainable revenue for the government. A well-calibrated approach is essential to maintain public confidence in the financial system while supporting broader economic objectives.
“To this end, the policy framework should incorporate a tax-free interest threshold, which would protect small savers and incentivize savings among low- and middle-income individuals. It is recommended that interest income up to Nu. 50,000 annually be exempt from taxation, thereby shielding the majority of modest savers from any adverse impact,” he said.
He added that for interest earnings exceeding this threshold, a progressive tax structure should be implemented. This would ensure that individuals earning higher interest income contribute proportionately more, thus aligning with the principles of fairness and equity in taxation.
“In addition, senior citizens should be provided with a separate savings scheme featuring a higher exemption limit, adjusted periodically to reflect inflation. This recognizes their reliance on fixed income sources post-retirement and supports their financial security,” he added.
The official underlined that to further diversify savings and investment options and reduce over-reliance on fixed deposits, the government should introduce alternative financial instruments such as inflation-linked bonds and long-term savings bonds. “These instruments can serve as attractive investment avenues, helping to deepen the domestic capital market and support national savings mobilization.”
He further explained that by incorporating these elements, the tax policy on fixed deposit interest can be both socially equitable and economically sound, fostering a savings-friendly environment while contributing to the government’s fiscal objectives.
A civil servant noted that people have the right to earn passive income. “Banks and financial institutions will not leave FDs unutilized. It will become a form of credit and FIs benefit. Further, the government says that rather than keeping money as FDs, it could be utilized for other business. Investing as FD is also business and most of the people having FD accounts may not be good businessman,” he added. “If the intention is to generate more income by taxing, the government should say so.”
Meanwhile, there are people saying it could lead to a slow-down in remunerations received from abroad. Some opine that saving habits could also be affected.
According to data from the Royal Monetary Authority there are only 12,933 FD account holders in the country. Collectively, they hold more than Nu 18.5 billion. On the other hand, 382 account holders (just 3 percent) hold 48 percent of all FD. 474 accounts hold between Nu 5–10 million. Less than 7 percent of account holders own more than two-thirds of all FDs in the country and over 9,000 accounts, each with balances under Nu 1 million, collectively hold just 11 percent of FD wealth.
Nidup Lhamo from Thimphu
