The Association of Bankers Bangladesh (ABB) has sought value-added tax (VAT) exemption on the sale of mortgaged assets through auctions to recover defaulted loans.
The association argued that the current tax burden is hampering efforts to recover mounting defaulted loans.
The country’s banking sector was heavily burdened by non-performing loans during the tenure of the Awami League government, with defaults reaching alarming levels.
The interim government has since taken a series of initiatives to recover overdue loans, with banks increasingly focusing on auctioning mortgaged assets to realise stuck funds.
However, both buyers and sellers are currently required to pay 15 per cent VAT each on auctioned properties, significantly raising transaction costs.
Citing these concerns, ABB has written to the National Board of Revenue (NBR) seeking VAT exemption in such cases.
In a letter undersigned by ABB Chairman Masrur Arefin, the bankers’ body noted that under an ordinance issued by the NBR, sub-registrar offices and money loan courts are collecting 15 per cent VAT from both buyers and sellers at the time of transferring auctioned assets.
The letter said selling mortgaged assets through auctions is already a difficult process, with banks often struggling to attract buyers.
“There is no VAT on regular land purchases, yet VAT is imposed on auctioned land. This increases the price of auctioned properties and discourages buyers,” the ABB chairman wrote, adding that this ultimately undermines the recovery of defaulted loans.
ABB also pointed out that auctioned properties are registered at their actual sale value, which increases both banks’ income and government revenue.
“But if auctions decline due to higher costs, overall revenue collection will fall,” the letter warned.
The bankers’ association argued that granting VAT exemption to both buyers and sellers is essential to make auctions effective and accelerate the recovery of non-performing loans.
The letter further said that the VAT and Supplementary Duty Act already provides exemptions for the sale, transfer and registration of land and buildings.
In addition, the higher judiciary has previously observed that VAT is not applicable to banks as sellers or to buyers in auction sales.
On these grounds, ABB urged the NBR to reconsider the VAT provision and grant immediate relief to facilitate loan recovery and stabilise the banking sector.
