The government is likely to propose slashing the existing two per cent tax rebate on the provision for bad debts of banks to one per cent up to June 2007 in the budget, sources in the National Board of Revenue told New Age.

The measure will generate at least Tk 250 crore as tax income per year for the exchequer, they added.

Besides, existing three per cent income tax at source on bidi is likely to be increased to four per cent in the upcoming budget, while tax at source for brickfields will be between Tk 7,500 and Tk 15,000, instead of the current flat rate of Tk 5,000, said sources.

NBR sources said the government was deprived of about Tk 450 crore in the 2003-2004 fiscal year due to the existing two per cent benefit in the form of tax rebate on provision for bad debt of banks.

The existing tax facility for banks was awarded from the 2001-2002 fiscal year, and will be over in June 2005. The total amount of bad debts up to March 2005 was Tk 19,287 crore.

According to the existing tax facility, banks are allowed to deduct two per cent provision for bad debts against the total amount of disbursed loans, prior to paying the 45 per cent corporate tax on their total income.

For instance, a bank disbursed Tk 500 crore loans in a certain fiscal year, for which it earned Tk 75 crore as interest from its clients. It spent Tk 7 crore for salaries, office rent and other expenses. Thus, the profit for the bank stands at Tk 68 crore, on which amount the bank has to pay tax if no provision facility exists.

But the bank now will pay tax on only Tk 58 crore, instead of Tk 68 crore, as it is now entitled to deduct Tk 10 crore ( two per cent of Tk 500 crore) for bad debts.
Both commercial banks and the Bangladesh Bank in May demanded retention of the provisioning facility for two more years.

‘In view of the fact that currently the banking industry has a large amount of non-performing loans and provision shortfall, it is proposed that the existing benefit in the form of tax rebate on provision for bad debts be extended for two more years,' suggested the Bangladesh Bank in April 2005 to the finance ministry.

The ensuing budget is likely to fix Tk 7,500 as income tax at source for a brickfield having only one section production capacity, Tk 10,000 for one and half section and Tk 15,000 for two sections or more production capacity.

Currently, brickfields have to pay Tk 5,000 per year as ‘at source tax' irrespective of the amount of their production. The amount has paid to the office of the deputy commissioner at the time of licence renewal.