The National Board of Revenue (NBR) has extended tax exemptions on interest income of foreign lenders who have lent to local firms until December 31, 2024, according to a notification issued early this week.

The tax authority imposed a 20 percent withholding tax on interest payment to foreign lenders by local firms at the beginning of this fiscal year 2023-24, removing the tax benefits which foreign creditors had enjoyed for decades.

The move created concerns among businesses, particularly by foreign investors in Bangladesh that imposition of the tax would discourage foreign borrowing and adversely impact the inflow of foreign currency 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.

Subsequently, on November 30 last year, the tax collector extended the exemption until February 28, this year, attaching certain conditions that 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 previous notification issued by the NBR.

In its latest notification, the NBR did not relax the conditions but extended the deadline until December 31, this year.

Private sector's foreign loans fell slightly to $21.28 billion until September 2023 from $22.25 billion three months ago. 

Bangladesh's total external debt also declined to $96.5 billion as of September last year from $98.1 billion at the end of June the same year, data from the Bangladesh Bank showed.