A 'no pay, no claim' measure is adopted on interest expenses to accelerate repayment of loans as parliament Saturday passed the finance bill with contentious provisions for black-money whitening and duty-free car import.
In another major fiscal measure, opposed by many, the government imposed gains tax on investors in stocks.
From July 1, 2024, taxpayers would be able to claim tax benefit on interest amount as 'allowable expenses' if they pay it (interest amount) in that year.
In the Finance Act 2024, passed Saturday in parliament, the government has scrapped the existing provision to cushion loan defaulters.
Taxpayers will be able to lessen their tax liability by claiming the interest or profit expenses in their tax returns, if it is paid instead of the existing provision 'payable'.
Currently, section 46(7) of the Income Tax Act 2023 allows payable interest or profit expenses of taxpayers to claim tax benefit up to three years, even if it is not paid in this period.
However, if the amount remains unpaid within three years, the entire amount would be treated as taxable in the fourth year as 'special business income'.
Official sources say the loopholes in the law have been addressed in this Act by amending the longstanding provision helping loan defaulters to exploit the leniency for years.
"Only interest actually paid will be considered for tax benefit," says one revenue official.
Executive Director of the Policy Research Institute (PRI) Dr Ahsan H Mansur hails the measure he expects to minimize the country's bloated non-performing loans or NPLs, staying as a dead-weight on the banking system.
"It is justified to allow tax benefit if interest amount is paid, otherwise a loan defaulter would benefit in two ways," he says.
According to Bangladesh Bank (BB) data, default loan in the banking sector had hit an all-time high at Tk 1.82 trillion until March 2024.
However, in view of recurrent lending anomalies, it has been claimed that actual volume of default loans is higher than the official figure.
As per BB data, some 11.10 per cent of the disbursed loans have turned sour as bad loan.
In the new act, the parliament has kept the highest tax rate for individual taxpayers unchanged at 25 per cent for FY 2024-25. In the budget speech on June 6, 2024, the finance minister had proposed to raise the tax rate to 30 per cent.
Dr Mansur says the decision is justified as existing taxpayers should not be penalized only. "The government should find out the tax-evaders and people escaping tax net."
Also, the proposal on imposing 25-percent Customs Duty (CD) on import of vehicles by Members of Parliament (MPs) has not been passed by the parliament.
As a result, the MPs would go on enjoying the duty-free benefit on import of their high-end vehicles.
Also retained are the tax-holiday and zero-duty facilities on import of capital machinery for private Economic Zones and Hi-tech Parks.
Despite strong demands for continuation of tax-free benefit for individual investors in capital market, the parliament endorsed the budget proposal imposing 15-percent capital-gains tax on investment above Tk 5.0 million.
Also, the much-talked-about black money-whitening scheme by paying 15-percent tax for both individual and corporate taxpayers is ratified by the lawmakers.
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