BB suggests continuation of tax exemption for loan provisioning
Monday, 18 February 2008
Doulot Akter Mala
The central bank has suggested for the continuation of tax exemption facility on the amount provisioned by individual commercial banks for the next three assessment years, starting from 2008-09.
Under the finance act 2005, the actual amount provisioned or 1.0 per cent of outstanding loans, whichever is lower, used to be considered as business expenditure. The facility was in vogue until assessment year 2006-07.
"Necessity for retaining provisions by banks increased significantly with the enactment of the 'loan classification rules in 1989'. This has affected the earnings of banks," the BB governor Salehuddin Ahmed said in the BB's proposals for inclusion in the national budget for next fiscal year, 2008-09.
The proposals were sent to the Internal Resources Division Secretary and NBR Chairman last Tuesday by the governor of the central bank.
Overall earnings of the 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 Taxpayers 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.
Any one taking bank loan amounting less than Tk 0.5 million (Tk 5.0 lakh) is not required to have TIN under the income tax ordinance.
In order to streamline it, TIN should be made mandatory for credit card holders enjoying 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 for fiscal 2008-09. Withdrawal of the facility would force the leasing companies to engage in an uneven competition with banks, it maintained.
In the current fiscal budget, the government withdrew the provision of depreciation benefit for the leasing industry and financial institutions by amending income tax ordinance 1984.
To encourage the bond market, earning from all kinds of bonds-including asset backed securitisation, mortgage backed secutitisation---should be allowed to get tax exemption, the central bank said in another proposal.
Recently, the NBR has waived tax on earning from zero-coupon bond. This decision of the Revenue board has encouraged banks, financial institutions and individuals, to invest in new areas, leading to a marked decline in the cost of funds.
The central bank has suggested for the continuation of tax exemption facility on the amount provisioned by individual commercial banks for the next three assessment years, starting from 2008-09.
Under the finance act 2005, the actual amount provisioned or 1.0 per cent of outstanding loans, whichever is lower, used to be considered as business expenditure. The facility was in vogue until assessment year 2006-07.
"Necessity for retaining provisions by banks increased significantly with the enactment of the 'loan classification rules in 1989'. This has affected the earnings of banks," the BB governor Salehuddin Ahmed said in the BB's proposals for inclusion in the national budget for next fiscal year, 2008-09.
The proposals were sent to the Internal Resources Division Secretary and NBR Chairman last Tuesday by the governor of the central bank.
Overall earnings of the 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 Taxpayers 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.
Any one taking bank loan amounting less than Tk 0.5 million (Tk 5.0 lakh) is not required to have TIN under the income tax ordinance.
In order to streamline it, TIN should be made mandatory for credit card holders enjoying 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 for fiscal 2008-09. Withdrawal of the facility would force the leasing companies to engage in an uneven competition with banks, it maintained.
In the current fiscal budget, the government withdrew the provision of depreciation benefit for the leasing industry and financial institutions by amending income tax ordinance 1984.
To encourage the bond market, earning from all kinds of bonds-including asset backed securitisation, mortgage backed secutitisation---should be allowed to get tax exemption, the central bank said in another proposal.
Recently, the NBR has waived tax on earning from zero-coupon bond. This decision of the Revenue board has encouraged banks, financial institutions and individuals, to invest in new areas, leading to a marked decline in the cost of funds.