The tax authority is seeking to impose 5 percent source tax on interest earnings of provident, pension or gratuity funds' bank deposits and savings instruments - a move that will curtail the funds' ability to reinvest.

"I cannot support tax on interest earnings on provident and gratuity funds, because it is hard-earned retirement benefit for employees, especially those from the private sector," said Anis A Khan, managing director and chief executive of Mutual Trust Bank.

Private sector employees do not get pension like their public sector counterparts, he said.

The move comes the time when only 5 percent of the population are employed in government services and enjoy pension benefits. The remaining 95 percent are employed in the private sector.

Only 8 percent of those employed in the private sector receive gratuity benefits, according to Finance Minister AMA Muhith's budget speech for fiscal 2016-17.

"There is no pension or gratuity scheme for the remaining 87 percent of the employed population," he added.

At present, interest incomes from savings instruments bought in the name of government-approved superannuation funds, pension and gratuity funds, recognised provident fund or workers’ profit participation funds have been exempted from tax.

"I do not think the imposition of tax on provident funds' interest income is logical. This is a potential future income of an employed person and the imposition of tax will reduce that future income of an employee," said Ahsan H Mansur, executive director of Policy Research Institute of Bangladesh.

"We should not encourage this. It's a saving for future income, so why would you tax future savings now? You should tax it when it becomes an income," he added.

Taxmen, however, said those who receive money from gratuity, provident or such funds are not under the tax net now. Taxpayers, including employers, also get tax rebate for investment in provident or gratuity funds, they added.

Boosting tax collection is another reason behind slapping tax on interest incomes by funds so that the tax authority can attain its direct tax target ofTk 71,490 crore for the next fiscal year, up 38 percent from the revised target this year.

Source tax on interest incomes from deposits and other savings instruments allows taxmen to get quite a handsome amount of tax.

The NBR logged Tk 6,329 crore in tax from interest on deposits in banks and savings instruments in fiscal 2014-15, up 20 percent from the amount a year ago.