While there has been negative public reaction on social media to the tax exemption of Grameen Bank, which distributes microcredit, it is worth noting that more than 700 microcredit institutions, such as Brac, ASA and TMSS, have never had to pay income tax.
Since its establishment through the Grameen Bank Ordinance, 1983, Grameen Bank enjoyed tax exemption until December 31, 2020. However, after falling out of favour with then-prime minister Sheikh Hasina, it was denied this benefit starting January 1, 2021.
According to sources familiar with the matter, although the bank applied for a tax waiver during that time, the government did not approve it.
The National Board of Revenue (NBR) issued a gazette earlier this month, declaring all of Grameen Bank's income declared tax-exempt. According to this new decision, the institution, which distributes loans to the country's poor population, will enjoy this facility until December 2029.
The microfinance-specialized community development bank was founded by Nobel laureate Dr Muhammad Yunus, who is now the chief adviser in Bangladesh’s interim government.
721 institutions get tax exemption
According to the Microcredit Regulatory Authority (MRA), there are 721 registered microcredit institutions in the country, all in the private sector. These institutions, which are certified by the MRA, do not need to apply to the NBR for tax exemptions; these institutions are tax-exempt by the power of the Finance Act.
As of September 19 of this year, there are 721 certified loan-distributing institutions registered with the MRA.
Like previous years, these institutions have been granted tax exemption under the Finance Act. According to the Income Tax Ordinance, 1984, any service charge derived from microcredit activities of any entity registered with the MRA is exempt from taxes.
What about Grameen Bank?
Microcredit institutions in Bangladesh are not required to pay taxes; the law explicitly states that tax exemption applies to institutions listed under the MRA.
However, Grameen Bank is not listed among the 721 certified institutions under the MRA.
As it is governed by a separate law, the exemption does not automatically apply to Grameen Bank. For this reason, Grameen Bank has to apply for an extension of its tax exemption after the expiration of its previous term.
Though Grameen Bank does not hold a certificate from the MRA, it operates similarly to institutions like Brac, ASA and TMSS in distributing microcredit.
Yet in 2021, the bank was unjustly denied tax-exempt status.
Since its inception, Grameen Bank had been receiving tax exemption. Even when the government repealed the Grameen Bank Ordinance and enacted a new law in 2013, the exemption remained in place. However, the erstwhile government revoked this benefit on January 1, 2021.
NBR Chairman Md Abdur Rahman Khan said all other microcredit institutions working in this sector received tax exemptions. “Since Grameen Bank was excluded, we have now corrected the situation using the same formula. Although Grameen Bank is labelled a bank, it primarily operates microcredit activities. Under the law, entities working with microcredit are eligible for tax exemptions.”
Since Grameen Bank's establishment in 1983, the NBR has issued notifications every three years renewing its tax exemption.
Microcredit institutions provide collateral-free loans to the poor. Typically, loans range from Tk2,000 to Tk12 lakh, enabling borrowers to invest in income-generating assets.
Microcredit was established to improve the living standards of people without the assets required for collateral and without access to conventional banking loans.
This system of microcredit distribution was institutionalized in Bangladesh in the 1970s after independence through private initiatives.
Today, large institutions like Grameen Bank continue to provide loans to the rural poor. Grameen Bank, established by law as a public authority, originated in 1976 from a research project led by Chittagong University’s Prof Yunus, aiming to provide banking services to the poor. Grameen Bank was founded in partnership with the government to reduce poverty through microloans.
Currently, Grameen Bank has 10.36 million members. Among them, 7.16 million borrower members have taken out loans amounting to Tk24,757 crore. Additionally, the outstanding loan balance of its members is Tk16,150 crore, and their savings balance is Tk22,682 crore.
Delays began in 2015
The NBR began dillidallying with the extension of Grameen Bank's tax exemption in 2015. In that year, Grameen Bank's application remained pending with the NBR for a long time without any decision.
The bank had requested tax exemption for five years, from 2016 to 2020, and after six months without a response, Grameen Bank even wrote to then-finance minister Abul Maal Abdul Muhith about it.
Despite the delays, the NBR eventually extended the tax exemption until December 31, 2020, through a gazette notification issued by then-NBR chairman Md Nojibur Rahman in May 2016.
However, after the expiration of this period, the government did not respond to Grameen Bank's application.
From the beginning, Yunus had been serving as managing director of the bank.
Bangladesh is globally recognized for pioneering the successful implementation of microcredit systems. Institutions like Grameen Bank and Brac are well-regarded both locally and internationally. In recognition of the role of microcredit in social development, Yunus and Grameen Bank received the Nobel Peace Prize in 2006.
Two months after the ouster of the Awami League, which had a frosty relationship with Yunus, Grameen Bank is once again exempt from paying taxes.
Following the tax exemption granted until 2029, discussions and criticisms have emerged on social media.
NBR explanation
The NBR on Monday issued an explanation through the press, saying that Grameen Bank, established under the Grameen Bank Ordinance, had received tax exemption on any income from its inception until December 31, 2010, through eight orders or notifications issued by the Ministry of Finance's Banking and Financial Institution Division.
Additionally, under the Grameen Bank Act of 2013, Grameen Bank is not a scheduled bank and primarily operates microcredit activities.
The NBR said that despite conducting similar microcredit operations as other institutions, Grameen Bank had not been receiving the same tax exemption benefits as other entities registered with the MRA.
To eliminate this discrepancy, the NBR, through a gazette notification earlier this month, granted tax exemption on all of Grameen Bank's income until December 31, 2029, subject to certain conditions.
The gazette signed by the NBR chairman granted Grameen Bank tax exemption on the condition of regular income tax return submissions.
Analysts note that the government has often provided tax benefits to various institutions engaged in microfinance, social or developmental work, or to help them compete in markets with foreign companies. Grameen Bank has also enjoyed such tax exemption benefits from the start.
Former NBR chairman Muhammad Abdul Mazid said Grameen Bank had valid grounds to receive tax-exempt status.
He added that the bank had been created to support the economic systems of grassroots communities. “In addition to microcredit, Grameen Bank also engages in social activities, such as providing educational loans and housing loans. As the institution serves the welfare of the poor and women, it deserves the right to tax exemption.”
