Bangladesh Bank introduces “Exit Policy” for expediting default loan recovery

Published at : 08 July 2024, 09:56 pm
Bangladesh Bank introduces “Exit Policy” for expediting default loan recovery
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Bangladesh Bank has formulated a new "Exit Policy" aimed at expediting the recovery of defaulted loans. This policy allows both defaulters and non-defaulting business customers to settle their industrial loans by paying off the balance, with specific conditions attached.

According to the central bank's new notification, applicants must deposit at least 10 percent of the loan amount upfront to qualify for this facility. Banks have been instructed to develop their own policies in line with the central bank's guidelines, incorporating similar conditions.

Under the policy, there will be no change in the quality of the loan until it is fully repaid, and customers utilizing the exit facility will not be eligible for new loans during this period. 

"If a businessperson takes this facility, they must repay the entire loan within a maximum of three years. These customers will not be identified as willful defaulters," the notification stated.

The central bank noted that borrowers' businesses or projects might incur losses due to uncontrollable factors, leading to hindered debt collection activities and insufficient cash flow for loan repayment. Consequently, such loans are classified as defaults but not as willful defaults.

The notification also emphasized that genuine adverse financial conditions can reduce the chances of debt recovery. Therefore, there is a need for a uniform policy to facilitate debt recovery or adjustment through the exit mechanism, as banks have been following varied procedures.

In this context, the new policy aims to maintain liquidity flow and reduce defaulted loans in the banking sector. Regular loan exit facilities may be granted for recovering adversely classified loans with poor recovery prospects or in cases where projects or businesses have closed due to uncontrollable reasons.

To apply for the facility, borrowers must pay a minimum of 10 percent of the existing loan balance in one-time cash. Banks are required to settle these applications within 60 working days of receipt.



Provident funds to pay 27.5% tax

Published at : 20 September 2023, 04:57 pm
Provident funds to pay 27.5% tax

Companies and organisations will be required to file tax returns on the income generated by employee welfare funds from the current fiscal year and pay a 27.5 percent tax on the earnings. 

The Income Tax Act 2023 incorporates the provision, lifting the tax exemption and amnesty on the compulsion to file returns for funds such as provident funds, gratuity funds and workers' profit participation funds maintained by the private sector.

The law, however, has exempted government-managed provident funds from taxation, raising questions.

TIM Nurul Kabir, executive director of the Foreign Investors' Chamber of Commerce & Industry, said there were many other avenues to collect tax.

"Employees benefit from provident funds after their retirement. So, the authority should not slap taxes on retirement benefit."

He said while levying the tax, the government has not treated provident funds of the private and public sectors equally.

"It is discriminatory," he said, adding that they would appeal to the tax authority for the withdrawal of the tax on income from provident funds.

Debabrata Roy Chowdhury, director for legal, regulatory and corporate affairs at Nestlé Bangladesh PLC, said the introduction of income tax on trust funds would lower the overall income from such schemes.

"This will have an adverse long-term impact on retired employees of private organisations."

Chowdhury urged the authority to address the issue in line with the spirit of the government's initiatives aimed at ensuring social security for private sector employees.

"The recent introduction of the universal pension scheme for private sector employees is a good example of that."

A senior official of the NBR, on condition of anonymity, said the income of government-managed provident funds was exempted in line with the Provident Fund Act 1925.

He said provident funds under the private sector had been historically exempted and there was no requirement to submit tax returns. As a result, it was unclear whether the funds were properly utilised.

"From now onwards, we will see proper disclosure."

The tax official said the contribution of payroll tax is about 3 percent of the total income tax although it should increase as the economy is growing.

Md Shahadat Hossain, a former president of the Institute of Chartered Accountants of Bangladesh, said income from investment in savings certificates, where people invest as a source of future earnings, is already taxed.

"From that perspective, the imposition of tax on provident and other employee welfare funds seems okay."

However, Towfiqul Islam Khan, senior research fellow at the Centre for Policy Dialogue, said social protection for private sector employees was low.

"Provident and other workers' welfare-related funds provide little social protection. The imposition of tax will increase inequality. But there can't be any discrimination in taxation between private and government provident funds."

Khan, citing the latest income tax law that replaced the Income Tax Ordinance 1984, said the NBR tried to find new avenues to increase tax collection and improve the nation's revenue-gross domestic product ratio, which is one of the lowest in the world.

"We can see the desperation of the tax authority to boost collection. This ultimately reveals the inability of the NBR to catch the tax evaders and illicit money makers."