New taxation on foreign loan interest hurts businesses
Staff Reporter :
Businesses have demanded withdrawal new provision of taxation on foreign loan interest payment as they feel that it will hamper industrialization in the country.
A 20 per cent “withholding tax” has been imposed in the current budget on interest payment resulting the cost of borrowing has now shot up to around 11 per cent.
The businesses are now suffering from the tax imposition from 1 July this year.
They said that the new provision has made foreign loans costlier further and a huge amount of foreign currency will go abroad due to the additional tax payment.
Demanding withdrawal of the provision, the Bangladesh Steel Manufacturers’ Association (BSMA) has sent a letter to the National Board of Revenue (NBR) recently.
Terming the new tax provision a big barrier to industrialization in the country, the association apprehended that it will reduce foreign direct investment and will hamper industrialization in the country as the final value of imported capital machineries and raw materials will be increased.
The prices of produced goods in the country in be increased and the exporters will lose competitiveness due to price-hike, the letter said.
The provision will also create fund flow crisis in the local business, the BSMA said.
Bangladesh’s external debt has hit $95.71 billion at the end of March 2023, highlighting its growing reliance on foreign loans to implement its development initiatives.
The public sector took $73.53 billion in foreign credit by the end of March 2023, with $61.9 billion borrowed directly by the government and the rest by various government institutions, according to the Bangladesh Bank data.
Meanwhile, the country’s private sector’s foreign debt declined to $22.18 billion at the end of March from $24.31 billion at the end of December 2022 and $25 billion in March 2022, the data showed.
Ahsan H Mansur, Executive Director of the Policy Research Institute (PRI), said that such a policy should be made after detailed study and the government could have announced this year that tax will be imposed on the foreign loans from next year.
“If this was done, businessmen and banks would get time to pay the loan. Now, they will suffer due to the sudden taxation. The loans taken before this policy are also taxed,” he said.
The imposition of this tax will lead to rising production costs with a cascading effect on already high inflation and export revenues.
Also, there is a possibility that the items currently manufactured to meet domestic demands might necessitate imports from foreign sources.
This shift could result in a surge in import expenditures.
