Despite interest waiver, loan defaulters proposed to pay tax on that

The government has proposed an income tax on waived interest against default loans disbursed by banks and financial institutions in the budget for fiscal year 2022-23.

The tax, however, will not be effective for individual defaulters, according to the proposed budget placed by Finance Minister AHM Mustafa Kamal in Parliament on Thursday.

Earlier, neither companies nor individuals needed to pay that.

Stakeholders said it would be an effective initiative to substantially reduce the number of defaulters, especially the companies who intentionally delay loan repayment despite good financial conditions.

The finance minister, in his budget speech, also said default loans are one of the major obstacles to the development of an efficient and modern banking system.

"We are, therefore, continuing our efforts to get out of the loan default culture. The government is further strengthening the system of encouraging good borrowers and bringing intentional defaulters to book."

He said one of the responsibilities of the government is to provide opportunities to those who have defaulted for valid reasons but want to continue their business.

"They are provided with a scope of a rescheduling facility by paying a down payment of only 2%." Capitalising on the policy, as many as 13 thousand 307 borrowers made their loans regular, the minister noted.

According to the central bank, Tk1,578 crore in loan interest was waived in the Covid-hit year of 2020 and Tk1,855 crore in 2021.

'Kind of penalty for intentional defaulters'

Appreciating the proposal, stakeholders said it would be a penalty for intentional defaulters.

"Sometimes borrowers intentionally become defaulters, even with the help of bankers, and the banks waive their interest," a senior official of income tax, wishing to be unnamed, told The Business Standard.

"If the waived interest amount is considered as their income and tax is imposed on it, the irregularities will be reduced," he added.

Selim RF Hussain, managing director of Brac Bank Limited and chairman of the Association of Bankers Bangladesh (ABB), said, "It is so easy to write off loans, the big companies can escape anyhow… So, this will be a kind of penalty for the big [intentional] defaulters."