Bangladesh’s banking sector is facing a severe crisis of confidence, marked by liquidity shortages, delayed deposit repayments, restrictions on encashing matured deposit pension scheme (DPS) and fixed deposit receipt (FDR) accounts, and forced reinvestment. These conditions raise a critical tax policy question: should taxpayers be taxed on income they have not actually received?
The issue extends beyond legal interpretation to fairness, economic reality, and the principles of taxation. Bangladesh’s tax system should impose liability according to taxpayers’ real economic capacity while ensuring that revenue measures remain equitable, practical, and responsive to prevailing financial conditions.
Consider a taxpayer who invested Tk 5 million in a double-benefit FDR scheme in 2020. When the scheme matured on July 15 in 2025, the amount payable became Tk 10 million, comprising Tk 5 million in principal and Tk 5 million in interest. The bank deducted Tk 500,000 as tax at source at the rate of 10 per cent on the interest income. In many such cases, however, banks have reportedly been unable even to issue the relevant tax deduction certificates.
At the same time, because of the bank’s liquidity crisis, no money could be paid to the depositor. Instead, the bank proposed that the entire amount be placed in a new FDR, leaving the taxpayer with little practical choice but to reinvest the full sum. On paper, the taxpayer earned Tk 5 million in interest. In reality, however, the taxpayer had no opportunity to withdraw, use, or enjoy that income.
Yet, when filing the income tax return, the taxpayer may be required to pay several hundred thousand taka more from personal funds after adjusting the tax deducted at source. Experiences involving blocked deposits and unpaid interest have increasingly featured in discussions among depositors. The question is therefore simple but significant: is it fair to impose an immediate and full tax liability on income that has neither been received by the taxpayer nor placed under the taxpayer’s effective control?
Under Section 62 of the Income Tax Act, 2023, interest or profit received from deposits maintained with banks or financial institutions is classified as “income from financial assets.” Section 63 applies the principle of “received or accrued, whichever occurs earlier” in determining when such income becomes taxable.
Consequently, once a bank records the interest and recognizes a liability in the customer’s name, the amount may be treated as accrued income, even when the customer is unable to withdraw it.
Similarly, under Section 102 of the Act, tax must be deducted at source when interest is credited to the customer’s account or actually paid, whichever occurs earlier.
Section 173 then requires a taxpayer to determine the total tax liability before filing the return and paying the balance after adjusting the amount deducted at source. When these provisions are applied together, a depositor may legally incur a tax liability without receiving any cash. Guidance issued by the National Board of Revenue also contains examples in which accrued but not yet received interest in fixed deposits is required to be reported under Section 63.
It would be inaccurate to suggest that the entire banking system of Bangladesh is facing the same degree of distress. Nevertheless, official and international assessments have clearly identified serious liquidity, capital adequacy, non-performing loan, and governance problems in several banks and banking groups.
According to Bangladesh Bank data, the ratio of non-performing loans in the banking sector increased from 9 percent at the end of December 2023 to 20.20 percent at the end of December 2024, and further to 30.60 percent at the end of December 2025.
The latest available quarterly data show that, by the end of March 2026, non-performing loans had risen to Tk 5.887 trillion, equivalent to 32.26 percent of the banking sector’s total outstanding loans of Tk 18.247 trillion. In the same report, a liquidity stress test indicated that 18 scheduled banks were at risk of failing to withstand the prescribed level of stress.
In June 2026, the World Bank also acknowledged growing pressure in Bangladesh’s banking sector and approved support aimed at protecting small depositors, strengthening supervision, and restoring confidence.
The Deposit Protection Ordinance 2025 and the Bank Resolution Act, 2026 were enacted in recognition of this reality. The Bank Resolution Act empowers Bangladesh Bank to restructure distressed scheduled banks, establish bridge banks, adopt other resolution measures, and seek necessary assistance.
Banking law recognizes that depositors may lose access to their funds when a bank faces financial distress, yet tax law offers no relief where interest is recorded but remains unavailable. This conflicts with the ability-to-pay principle and the doctrine of real income, as accounting entries do not necessarily create taxable capacity.
In Bangladesh, many depositors cannot withdraw their savings because banks are unable to meet their obligations. Taxing such unrealized interest, particularly where tax is deducted at source before actual payment and the relevant certificates are not provided to depositor-taxpayers, imposes a double burden.
The Income Tax Act 2023 should therefore be amended to reflect present economic realities and tax income only when it becomes accessible.
The National Board of Revenue should consider appropriate relief, deferral, or adjustment measures to ensure fairness, preserve public confidence, and prevent further discouragement of formal savings and has an opportunity to introduce appropriate policy measures as follows.
First, it could issue an explanatory circular clarifying that, where interest remains unpaid due to a bank’s financial incapacity, the payment of tax should be deferred until the taxpayer actually receives the income. Alternatively, the tax liability could be temporarily waived until conditions in the banking sector improve or the taxpayer receives the funds.
Second, a specific provision could be inserted into the Income Tax Act, 2023 stating that interest which remains unpaid because of a bank’s liquidity crisis, regulatory restrictions, or a court order will not become taxable until it is actually received.
Third, the existing tax deduction at source mechanism deserves reconsideration. Requiring tax to be deducted only when payment is actually made would create a more appropriate balance among the interests of taxpayers, banks, and the government.
Fourth, if the government wishes to retain the existing accrual-based system in order to protect revenue, it should at least introduce a tax deferment mechanism under Section 173. This would allow taxpayers to pay the outstanding tax only after receiving the relevant income.
Bangladesh’s banking sector urgently needs public confidence to support broader economic stability.
Taxing depositors on income has not actually received risks eroding trust, discouraging savings, and limitingfinancial inclusion. Taxation should reflect not only statutory wording but also fairness and economic reality.
The gap in the Income Tax Act 2023 should therefore be corrected so that tax arises only when income is realized.
While the state needs revenue, it should not tax income that exists only on paper and remains inaccessible. A sustainable tax system must balance fiscal needs with taxpayers’ right to fair treatment.
The writer is a financial sector analyst, and he can be reached at [email protected]
