Trade-investment to suffer for tax on foreign loan interest
Al Amin :
Businesses are concerned over foreign loans becoming costlier as the National Board of Revenue (NBR) has incorporated a provision of imposition a maximum 30 per cent tax on interest of loans from external sources in the income law.
Businesses think that the foreign loan will be expensive further and will put adverse impact on the country’s trades and investment due to the new taxation.
The foreign lending firms will now enforce the local borrowers to pay the tax and the additional tax burden will increase the business cost as well as foreign investment will be hampered, they said.
Expressing concern over the tax burden, the Metropolitan Chamber of Commerce and Industry (MCCI) has sent letter to the NBR seeking withdrawal of the new taxation for the sake of trades and investment.
In the letter, it said, “Most of the industrial units are mainly import dependent. The capital machineries and the raw materials of the units are imported through the loans from the foreign sources. Currently, the industrial firms are failing to open letters of credit (LCs) on time due to dollar shortage.”
“Besides, the entrepreneurs take foreign loans to set up new industrial projects and to import raw materials as well as there is external investment in the local firms through the loan system,” the letter said.
“Under this circumstance, if the NBR deduct 20 per cent tax from the foreign loan interest, it will put adverse impact on local business and huge amount money
will go to abroad,” it said. “Besides, domestic loan interest is tax free. So, foreign investment may be hindered due to this disparity,” it said.
Considering these issues, MCCI has demanded to cancel the provision of tax deduction on foreign loan interest.
Wishing anonymity an official of the NBR told The New Nation, “We have received the letter from the MCCI. But, we haven’t yet taken any decision in this regard.”
“The provision is not new as it was in the country’s income tax law before. Some businesses used to take illegal privilege by misleading the provision. The provision has been incorporated in the law to prevent the unethical facility and to clarify the confusion.”
The NBR imposed the tax burden on businesses at a time, when they are in a tight corner for high production costs and a decline in demand.
Rizwan Rahman, former president of Dhaka Chamber of Commerce & Industry (DCCI), said, “This imposition is practically a ban on foreign loans as this will ensure no businesses can avail low interest loans from abroad.”
“It will hamper large projects and definitely discourage FDI that brings in foreign loans. Given the current banking sector crises, local loans will also be difficult to achieve as this year national budget has highest deficit which will be adjusted with public sector borrowing, which will created unfair competition for private sector to avail local loans as well,” 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.
Mohammad Hatem, Executive President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said, “We need a policy to encourage taking loans from external sources as we are passing a tough time over foreign currency reserves.”
“Instead, the NBR has taken wrong decision as it will increase the capital expenditure as in most of cases we are using that fund for payment of capital machineries,” he added.
