Tax on the interest part of foreign-loan repayment goes for now following demand from businesses, especially foreign investors, and also from the central bank.
The tax waiver will be valid until February 28, 2024, as the National Board of Revenue (NBR) considered a grace period to enable foreign investors to get prepared with the change in a fiscal measure that came into effect on July 1, 2023.
In the budget for the current fiscal year, the tax authority has, for the first time, imposed 20-percent tax at source on the interest amount on the loans taken from external sources.
The Income-tax policy wing of the NBR issued Tuesday a Statutory Regulatory Order (SRO) giving the tax cut retrospective effect since November 30, 2023.
The tax waiver would not be applicable to advance payment of interest on foreign loans.
However, foreign investors' representatives find the waiver for a specific time period "futile" as loan agreements are usually signed for at least five years.
They have said the latest order would worsen the problems as a pause for three months may create more complexities in loan repayment.
Debabrata Roy Chowdhury, head of legal and taxation of Nestle Bangladesh, says the Foreign Investors Chamber of Commerce and Industry has sought an open-ended tax break akin to previous year.
"It is a welcome move that the NBR considered tax cut for investors, but it would not work unless the time period lifted," he adds.
Talking to the FE, a senior tax official said the NBR waived the tax for a certain period of time as the Foreign Investors Chamber of Commerce and Industry (FICCI) demanded a time-span to settle or rearrange loan agreements with the foreign sources.
"The tax authority also expects that the country would be able to recover the current dollar crisis by that time after election, as vowed by the Bangladesh Bank (BB), too," he added.
The official made it clear that tax at source on foreign loans would not be applicable for government's loans from the development partners, including the International Monetary Fund (IMF), the World Bank (WB) and so.
He also clarified that the tax on interest accrued to loans from external sources was imposed on the foreign lenders, not the borrowers in Bangladesh.
However, the NBR has imposed some conditions in the SRO for availing the tax waiver, including submitting application in a prescribed format of the tax authority by loan-takers with an undertaking. Name and Taxpayer Identification Number of the individual or company paying back loan, recipient details in other countries, how the loan has been utilised and volume of repayment have to be furnished in the form.
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