According to the changes made to the Tax Code, the process of tax exemption of monthly interest income from deposits of citizens in banks will be implemented in Azerbaijan.
It should be noted that before this, monthly interest income from deposits in banks was taxed at the rate of 10 percent. Both people and experts were dissatisfied with this rule. Now it is planned to change these rules. However, there are some unclear points here…
The main point is that the income is exempt from taxation
Deputy Vugar Bayramov, a member of the Economic policy, industry and entrepreneurship committee of the Milli Majlis, said that two amendments are planned to the Tax Code regarding interest from deposits: “The main essence of the amendments is the exemption of monthly and annual incomes of citizens with average deposits from tax. The new rules are supposed to come into force on January 1. According to the changes, interest income up to 200 manats per month and 2400 manats per year will be exempted from tax. If a citizen has a deposit of 30,000 manats in the bank, and an eight percent return is calculated on that deposit, this means that the citizen’s annual income is 2,400 manats. In this case, the income earned by the citizen from interest throughout the year is completely exempt from tax. No, if a citizen has a deposit of 50,000 manats in the bank, and the tax is calculated at eight percent, the annual income of that citizen is four thousand manats. Then 2400 manats are deducted from four thousand manats. The citizen must pay 10 percent tax on the remaining 1,600 manats. That is, 160 manats of the client’s annual income of 4,000 manats is taxed. The second change is that if a citizen has deposited an 18-month deposit, he will be completely exempt from tax, regardless of his income.”
Will deposits in banks increase?
According to the MP, there are two reasons for this change: “The main goal of both innovations is to attract more deposits to banks. Because the cancellation of tax benefits from February 2023 had a direct impact on attracting deposits to banks. Another goal is to increase the number of 18-month and longer-term deposits.”
Individuals, not legal entities
Gorkhmaz Agayev, an expert of the Banks Association of Azerbaijan and a specialist in banking issues, stated that according to the first change in the law, the grace period is not provided: “The two changes related to deposits apply only to individuals. It does not apply to legal entities. Previously, a 10 percent tax was levied on the amount paid for the deposit. According to the changes made now, no tax will be deducted from the profit up to 200 manats per month. Incomes above 200 manat will still be taxed at 10 percent. The validity period of the concession regarding this change is not indicated. That is, the law will remain in force until it changes.”
Valid for national currency only
According to G. Agayev, the grace period was set in the second amendment: “If citizens keep their savings for more than 18 months, they will not pay any tax, even if they earn 100,000 manat per month. This change is currently in effect for three years. The changes apply only to deposits made in national currency. These benefits will not be applied to deposits in other currencies.”
Longer term credit facility
The expert noted that the innovation is beneficial for both banks and people: “The main importance of these changes is to strengthen citizens’ confidence in the banking system and encourage them to deposit their money in the bank for a longer period of time. It is also important for the citizen that he will not keep cash in his hands, he will get long-term income from the funds he deposited in the bank and he will not pay any taxes. It is important for the bank that deposits of the population are one of the main financial sources of the bank’s activity. Due to the attracted deposits, banks will strengthen their lending activities. A second benefit for banks is that they will be able to provide longer-term loans. Citizens will know that if they make a deposit for 18 months and do not withdraw it, the full tax relief will apply. In such a case, his deposit will not be touched and the bank will provide longer-term lending at the expense of those funds.”
Savings is also an investment tool
G. Agayev thinks that the changes made to the Tax Code will also lead to the strengthening of our economy: “Savings are also an investment tool. In this case, their attractiveness as an investment tool will increase. It will also be useful for the economy that citizens will keep funds in bank accounts instead of cash. Thus, the process of de-cashing the economy will be accelerated.” (“Kaspi” newspaper)
#income #increase