Despite the exemption from interest, the defaulting debtors offered to pay the tax on this

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The government has proposed in the budget for the fiscal year 2022-2023 an income tax on unpaid interest on defaulted loans disbursed by banks and financial institutions.

The tax, however, will not be effective for defaulting individuals, according to the draft budget tabled by Finance Minister AHM Mustafa Kamal in Parliament on Thursday.

Previously, neither companies nor individuals had to pay this.

Stakeholders said it would be an effective move to drastically reduce the number of defaulters, especially companies that intentionally delay loan repayments despite having good financial terms.

The Minister of Finance, in his budget speech, also stated that loan defaults are one of the main obstacles to the development of an efficient and modern banking system.

“So we are continuing our efforts to break out of the default culture. The government is further strengthening the system of encouraging good borrowers and getting intentional defaulters to book.”

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

“They get rescheduling leeway by making a down payment of just 2%.” Capitalizing on the policy, up to 13,000 borrowers have returned their regular loans, the minister noted.

According to the central bank, Tk 1,578 crore of loan interest was forgiven in the Covid-hit year 2020 and Tk 1,855 crore in 2021.

“A kind of punishment for intentional defaulters”

Appreciating the proposal, stakeholders said it would be a punishment for intentional violators.

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

“If the amount of interest waived is treated as their income and a tax is imposed on them, the irregularities will be reduced,” he added.

Selim RF Hussain, Managing Director of Brac Bank Limited and Chairman of the Bangladesh Bankers Association (BBA), said: “It’s so easy to write off loans, big companies can get away with it anyway… It will therefore be a sort of sanction for the great [intentional] defaulters.”

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