Saturday, May 04, 2024
The National Board of Revenue (NBR) has withdrawn the 20 per cent source tax on the interest of foreign loans until February 28 next year, citing the country's economic situation and USD market instabilities as primary considerations.
It has recently issued an SRO in this regard.
Previously, the government had been providing a tax exemption on the interest of foreign loans for an extended period.
This benefit was however revoked abruptly, and the NBR had introduced a 20 per cent source tax on the interest of foreign loans, applicable to foreign entities, effective from July 1 of FY24.
Business owners have been expressing concerns over this decision since then, claiming even though the initiative to bring foreign entities under NBR's tax jurisdiction has been taken, the burden of this taxation will ultimately fall on the borrowers.
This will result in an increase in the cost of loans. The Bangladesh Bank has also requested a reconsideration of this decision.
In a letter sent to the NBR on August 31, the central bank mentioned that a circular issued on November 29, 1976, had previously exempted the tax on the interest of foreign loans. However, in a circular issued on May 23 of the current year, this exemption was revoked.
The Bangladesh Bank clarified that borrowers will bear this additional cost until the end, not the foreign lenders. As a result, considering the grassroots level, the tax rate is expected to increase by 25 per cent.
The central bank further states that due to the risk associated with interest rate adjustments in foreign currency loans and exchange rate fluctuations, offshore banking units, corporates, and importers will be discouraged from taking on foreign loans.
This will create an additional pressure on liquidity and exchange rates. Business owners and bankers argue that not providing this exemption will significantly hinder industrial growth within the country.
Many entrepreneurs have relied on these concessional loans for the expansion of their businesses.
