Tax waived loans or their interest: ICMAB

Cost and management accountants yesterday proposed that the government tax either loans waived by commercial banks and non-bank financial institutions or the interest accrued on the loans to discourage defaulting on loans.

The proposal was placed at a pre-budget meeting organised by the National Board of Revenue (NBR) at its headquarters in the capital's Agargaon.

"We are proposing for inclusion of the provision to discourage the practice of loan default and interest waiver," said Abdur Rahman Khan, president of the Institute of Cost and Management Accountants of Bangladesh (ICMAB), at the event.

The NBR organised the meeting to hear views and concerns of businesses and stakeholders as a part of its preparation to frame tax proposals for fiscal year 2023-24 beginning from July.

NBR Chairman Abu Hena Md Rahmatul Muneem chaired the event where the Institute of Chartered Secretaries of Bangladesh (ICSB) also submitted some proposals of their own.

"This is necessary for equity. The removal of waiver of interest on loans will also increase government's revenue collection," Khan said.

The suggestion comes at a time when the amount of defaulted loans is increasing, with many banks waiving interest on loans to recover the money.

The ratio of default loans to total outstanding loans as of September 2022 was 9.36 per cent.

The total amount of outstanding default loans was Tk 134,396 crore, showed data from Bangladesh Bank.

As per existing provision of income tax, loans and interest waived by commercial banks are not treated as income and so are not taxed, said the ICMAB.

In its proposal, the ICMAB also urged that the NBR automate the selection process for auditing tax returns, saying that because of the manual process of tax file selection, many taxpayers are repeatedly being selected for audits although it should not be.

"Audit should be selected in an automated manner to eliminate harassment," said Khan, adding that he knew a person whose tax file came under audit of the field office for eight consecutive years.

The ICMAB said in many cases tax returns were selected for audits at the wish of the tax authority.

"This practice will stop if automation is done. It is essential," said Khan.

The ICMAB said automated audit selection would also increase revenue.

"Unwanted hassle will decrease. It will bring harmony among the taxpayers," added Khan.

On the provision making it compulsory for holders of taxpayer identification numbers (TINs) to submit tax returns, the ICMAB said it should be scrapped for people who do not have taxable income.

Because of the rule, a TIN holder has to prepare returns, which involves costs, even in cases when one does not have taxable income, he said.

A 90-year-old has to submit returns for the law although the person may not have taxable income. It could be that the person cannot even sign for age-related complications, Khan said.

"What is the benefit of wasting papers?" he asked.

The ICMAB also suggested the tax authority offering an amnesty -- that returns of taxpayers informing of wealth of up to Tk 25 lakh would not fall under audits.

"This will encourage new taxpayers to furnish returns," he said.

The ICSB, in its proposal, suggested that the NBR increase the tax-free income limit to Tk 700,000 annually from the existing provision of Tk 300,000. "We propose the measure as the living standard of lower and middle class has eroded for high inflation and the rising cost of living," said ICSB President Mohammad Asad Ullah.