Merchant banks, brokers exempted from taxes on waived interest
FE Report | Friday, 27 June 2014
The interest on margin loans, which was waived by merchant banks and stock brokers in 2011, will be considered as 'allowable' expenses, the revenue board has said.
As a result, merchant banks and stock brokers will not have to pay any tax on the waived interests.
The National Board of Revenue (NBR) said this in a letter sent to the chairman of the Bangladesh Securities and Exchange Commission (BSEC) on June 25, 2014.
The NBR issued the letter to make it clear for the field-level tax officials and other stakeholders.
Referring to the clause (XV) of sub-section (1) of the section 29 of the Income Tax Ordinance, 1984, the NBR said, "According to existing income tax ordinance, there is a provision of considering the interest, which was waived to implement capital market refinancing scheme, as allowable expenses."
The clause (XV) of sub-section (1) of the section 29 of the Income Tax Ordinance, 1984, reads, "The amount of any debt or part thereof which is established to have become irrecoverable and has actually been written off as such in the books of accounts of the assessee for the income year if the debt or part thereof has been taken into account in computing the income of the assessee of that income year or an earlier income year and, in the case of the business of banking or money-lending carried on by the assessee, represents money lent in the ordinary course of business."
Some 28 merchant banks and 280 stock brokers waived 50 per cent interests on margin loans that they had disbursed against their clients' portfolios in 2011 as per the government's instruction under the capital market refinancing scheme.
The revenue board was supposed to treat the 50 per cent interest as allowable expenses in accordance with the government's instruction.
In this connection, the Bank and Financial Institutions Division of the Ministry of Finance sent a letter to the chairman of the National Board of Revenue (NBR) on May 5, 2013, seeking the NBR's necessary steps for considering such waived interest as allowable expenses.