Scrapping of new taxation on foreign loan demanded
Staff Reporter :
Businesses have demanded for scrapping the provision of new taxation on foreign loan interest as it will increase business cost and disrupt inflow foreign currency into the country.
The National Board of Revenue (NBR) has imposed a maximum 30 per cent tax on interest of foreign loans in the new tax law.
Expressing concern over the law, the Metropolitan Chamber of Commerce and Industry (MCCI) sent a letter to the NBR recently seeking cancellation of the provision as the foreign loans will become more expensive for it.
In the letter, the chamber said that the foreign lenders will now pass the additional tax on interest to the borrowers and it will become a burden for the businesses.
The letter signed by MCCI Secretary General Farooq Ahmad mentioned that all businesses in Bangladesh are mainly import dependent.
“Besides, the machineries of all the industrial firms and the raw materials used in the industry are imported through foreign loans. On the other hand, the entrepreneurs of the industrial sector are failing to open letters of credit (LCs) for imports on time due to shortage of foreign exchange,” he said.
Under the circumstance, the new taxation on interest of loans from external sources will disrupt the inflow of foreign currency further, the letter said.
Mohammad Hatem, Executive President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told The New Nation, “We need a policy to encourage taking loans from foreign sources as we are passing a tough time over foreign currency reserves.”
“But the provision of new taxation will increase the capital expenditure as in most of cases we are using that fund for payment of capital machineries,” he added.
According to Bangladesh Bank data, the country’s gross external debt was $96.24billion until December 2022. Out of that, private sector’s loans were $24.3 billion, of which, short term trade credit was over $11.15 billion. There was no provision of tax on foreign loan interest.
It was exempted by a Statutory Regulatory Order (SRO) in 1976. But that SRO has been scrapped by issuance of new SRO of Income Tax on May 23 this year.
As per the income tax law, the interest of the loans of external sources will come under source tax net, which will put adverse impact on local business as the business cost will be increased for the additional tax, the MCCI claimed.
