NBR considers extension of tax exemption

The National Board of Revenue (NBR) is planning to extend tax exemptions on interest income of foreign lenders who have lent to local firms.

The exemption may be extended until December 31, 2024, said a senior official of the NBR on condition of anonymity.

The tax authority is mulling the offer on conditionally exempting foreign lenders from paying a 20 percent withholding tax on their interest earnings until February 28 next year.

The borrowers will need to apply with the NBR mentioning their names, taxpayer identification numbers and details of the lenders to whom interest on loans are paid.

To ensure the exemption, businesses will also need to mention the principal amount and the amount of interest they pay to the lenders, according to the notification issued by the NBR last week.

The tax administration has been offering tax benefits on the interest income of foreign lenders for decades.

It slapped the withholding tax from this fiscal year of 2023-24, which created concerns among businesses.

The imposition of the tax would discourage foreign borrowing and adversely impact the inflow of foreign funds at a time when the country's forex reserve is under pressure and a sharp depreciation of the taka against the dollar has increased loan repayment costs.

The Foreign Investors' Chamber of Commerce & Industry earlier demanded removal of the withholding tax.

The NBR official said they were considering extending the tax exemption as businesses were ending up having to pay the tax when sending their lenders abroad interest against loans.

Since this tax was recently imposed, it might hurt the relationships of foreign lenders who have been doing business with local firms for long, he said.

He said the devaluation of the taka has already increased loan burden of local businesses.

Under such circumstances, there will be increased difficulty if local businesses have to count the withholding tax on interest payment from their own pockets, he said.

Until June 2023, the private sector had $22.25 billion in loans, including short term ones of $13.6 billion, according to Bangladesh Bank data.