ABB concerned over mandatory tax return submission for SME loans

Summary:

• Proof of tax return mandatory for over Tk5 lakh loans, credit cards proposed
• Implementing the proposal will discourage CMSMEs and individuals who seek loan
• ABB proposes a ceiling for CMSME loans at Tk50 lakh, for individual loans at Tk10 lakh, and for credit card loans at Tk5 lakh

The budget proposal for mandatory submission of tax return documents to get loans will further complicate the process for marginalised entrepreneurs who have already been struggling to secure loans due to a large number of documents required in loan applications, said the experts.

In a letter to the finance minister in this regard, the Association of Bankers, Bangladesh (ABB) said the proposal would turn cottage, micro, small and medium entrepreneurs (CMSMEs) towards non-institutional lenders, cooperative societies and small lenders.

The finance minister in his budget proposal has proposed to make submission of proof of tax return mandatory for borrowing over Tk5 lakh and for acquiring credit cards.

Earlier, an entrepreneur could take a loan by only submitting an Electronic Taxpayer's Identification Number (e-TIN) and relevant documents.

Aside from the CMSMEs, individual borrowers and credit card seekers will also be affected if the proposed rule is implemented, said ABB.

ABB has called for implementation of the decision over a few years as the immediate implementation of it would affect government revenue.

ABB also said if the government wants to implement the rule from this fiscal, it should set the ceiling for CMSME loans at Tk50 lakh, for individual loans at Tk10 lakh, and for credit card loans at Tk5 lakh.

People involved in the SME sector said lack of funds is the biggest problem for the country's marginalised entrepreneurs as getting loans by submitting all the required documents is a difficult and time-consuming process.

The government's new decision will make it more difficult for SME entrepreneurs to secure financing, they said.

Various government organisations including the Bangladesh Small and Cottage Industries Corporation and SME Foundation have been taking various initiatives to increase the contribution of the SME sector to GDP. The Bangladesh Bank is also providing various policy assistance to make the process of getting loans for the SMEs.

Mofizur Rahman, managing director of SME Foundation, said, "It would not be right to immediately implement this rule for getting a loan. There could have been instructions for step-by-step implementation of the rule."

"CMSMEs have already been facing many difficulties in getting loans. If the new decision is implemented, it will be more difficult for them to get loans."

Submitting tax return document to lengthen the process

The obligation to submit tax return documents will make the entire loan process more complicated and time-consuming, because entrepreneurs will have to wait a long time to get receipts for filing tax returns, said ABB.

The complexity regarding asset declaration, delay in filing tax returns and verification will make it immensely difficult for the financial institutions to provide services to customers and narrow the path of financing for the CMSMEs.

ABB also said it would not be possible for the banks to verify the tax return certificates as they do not have a system for this purpose.

Problems with personal and credit card debt

Currently the banks provide loans if someone's monthly income is minimum Tk30,000 and issue credit cards if his monthly income is minimum Tk20,000.

Having an e-TIN is currently sufficient for such people to get loans and credit cards, but the new proposal for tax return submission will make them unable to take instant loans and credit cards.

Moreover, most of the credit card-based transactions, fees and charges are subject to VAT. So, low-income customers, who remain out of the tax net, contribute to national revenue through the use of credit cards, said ABB.

ABB also thinks that the new decision will hamper the realisation of cashless society in digital Bangladesh and will limit the use of debit and credit cards.

As a result, a large section of the population will remain out of digital transactions.