BB seeks cut in corporate tax on banks, FIs' income from loans to productive sectors

---

Doulot Akter Mala
The central bank has suggested a cut in corporate tax on income of commercial banks and financial institutions, generated from the disbursed loans for productive and employment generating sectors.
"The government could levy a reduced rate of corporate tax on the income generated from the loans disbursed for agriculture, small and medium-scale industry, poverty eradication and other productive and employment generating sectors," the Bangladesh Bank (BB) said in its proposals.
The BB recently submitted the proposals to the National Board of Revenue (NBR) for inclusion in the national budget for the fiscal 2009-10.
Presently, commercial banks and financial institutions are entitled to paying corporate tax at the rate of 45 per cent of their profits.
A cut in the corporate tax will increase the flow of loans to those sectors.
The BB also suggests that the government keep the corporate tax unchanged for non-productive sector (trading, retail banking).
"The loan flow to the non-productive sector will decline if the rate of corporate tax remains unchanged for it," the BB budget proposal said.
The central bank has also suggested waiver of excise duty on bank accounts terming it 'double taxation' as the government deducts tax at source from the interest income of the account holders.
"Waiver of such double-taxation measures could be considered in the next budget. In the 1997 fiscal budget, the government made deposits up to Tk 10,000 excise duty-free for helping the small depositors. As an alternative provision, the government could raise the ceiling to a rational level," the BB said.
The BB also suggests that the NBR consider tax exemption on the amount spent for corporate social responsibility (CSR) activities of banks and financial institutions.
The central bank has suggested continuation of the tax exemption facility on the amount provisioned by commercial banks for the tax years 2009-2010 and 2010-2011.
Under the Finance Act 2005, the actual amount provisioned or 1.0 per cent of the outstanding loans, whichever is lower, used to be considered as business expenditure. The facility was in vogue until the tax assessment year 2006-07.
Overall earnings of banks would be seriously affected if they were forced to pay income tax on the actual amount provisioned. Besides, the move will also discourage banks to continue with the same, the central bank said.
On the issue of mandatory Taxpayer's Identification Number (TIN) for all credit-card holders, irrespective of the loan limit, the BB said that it was not in conformity with the Income Tax Ordinance.
Anyone taking bank loan amounting to less than Tk 500 thousand (Tk 5.0 lakh) is not required to have his TIN under the Income Tax Ordinance.
In order to streamline it, possession of TIN should be made mandatory for credit-card holders enjoying a credit limit facility above Tk 0.5 million.
The central bank also urged the government to reintroduce depreciation allowance benefit for the leasing companies in the budget. Withdrawal of the facility would force the leasing companies to engage in an uneven competition with banks, it maintained.
In the budget for the 2007-08 fiscal, the government withdrew the provision of depreciation benefit for the leasing companies and financial institutions by amending the Income Tax Ordinance, 1984.
To encourage the bond market, earnings from all kinds of bonds--including asset-backed securitisation, mortgage-backed securitisation---should be allowed to get tax exemption, the central bank said in another proposal.