Merchant banks and stockbrokers have been exempted from paying tax on the interest they waived last year for the investors affected by a stockmarket debacle in 2011.
The benefit came last week after the tax authority decided to consider the interest as allowable expenses, which are business expenses and can be used to reduce the amount of income on which tax is paid.
The move will increase cash flow in merchant banks and stockbrokers, who are going through financial troubles and many of whom are incurring losses due to the sluggish market.
The merchant banks and stockbrokers had booked the interest on share credit as income in their accounts in 2011.
But at the instruction of the government, they waived 50 percent interest on share credit and paid back the waived amount to the affected investors last year.
Some 28 merchant banks waived interest amounting to Tk 65 crore, while 280 stockbrokers waived around Tk 50 crore.
The National Board of Revenue made it clear last week after confusion arose on the issue, as the finance ministry had asked the tax authority to consider the waived interest as allowable expenses.
The NBR said, as per the existing income tax ordinance, there is a provision of considering the interest as allowable expenses.
“If the waived interest is considered allowable expenses, it will have a positive impact on the cash flow of a merchant bank or a stockbroker,” said Al-Maruf Khan, chairman of CMSL Securities.