Bangladesh’s banking sector has been facing a prolonged crisis of confidence, with many depositors experiencing delayed withdrawals, restricted access to matured deposits, liquidity shortages, and, in some cases, forced reinvestment of their savings. Amid this difficult environment, a significant question has emerged in tax policy: should a taxpayer be required to pay tax on income that has been recorded but never actually received?
The issue extends beyond a technical interpretation of tax law. It touches on the principles of fairness, economic reality, and the fundamental philosophy behind taxation. A fair tax system is generally expected to reflect a taxpayer’s actual economic capacity. While the government has a legitimate need to collect revenue, taxation policies must also remain aligned with real financial circumstances and ensure that taxpayers are not placed under unreasonable burdens.
Consider the case of a depositor who invested Tk 5 million in a double-benefit fixed deposit scheme in 2020. When the scheme matured on 15 July 2025, the depositor became entitled to receive Tk 10 million, consisting of Tk 5 million in principal and Tk 5 million in interest. The bank deducted 10 per cent withholding tax on the interest amount, resulting in a tax deduction of Tk 500,000. However, in some cases, banks were unable to provide even the necessary withholding tax certificates.
At the same time, due to liquidity pressures faced by certain banks, depositors were unable to withdraw their matured funds. Instead, they were offered the option of keeping the entire amount in another fixed deposit scheme, and many had little choice but to accept such arrangements. As a result, although the depositor’s records showed an income of Tk 5 million in interest, the money was never available for withdrawal, use, or personal benefit.
Despite this, the taxpayer may still face an additional tax burden while filing a return, requiring further payment from personal funds after adjusting the tax already deducted at source. This creates a difficult situation: the depositor is deprived of access to their own money while simultaneously being required to pay tax on that unavailable income.
Under the Income Tax Act, 2023, interest or profit earned from deposits held with banks and financial institutions is classified as income from financial assets. The law determines the timing of taxable income based on the principle of “received or accrued, whichever is earlier”. Therefore, once a bank calculates interest and records it as payable to a customer, the amount may be considered accrued income, even if the depositor cannot actually withdraw it.
The law also provides that withholding tax on interest income should be deducted when the interest is credited to the customer’s account or when payment is made, whichever occurs earlier. Afterward, taxpayers are required to calculate their total tax liability before submitting returns and pay any remaining amount after adjusting the deducted tax.
As a result, the current legal framework allows a situation where a taxpayer may become liable for tax even without having access to the actual cash. Tax guidelines also recognise that accrued interest on fixed deposits may need to be declared as income even before it is physically received.
However, the practical reality of Bangladesh’s banking sector has changed considerably. Several banks have faced serious challenges involving liquidity shortages, weak governance, capital pressure, and rising non-performing loans. According to Bangladesh Bank data, the ratio of non-performing loans increased from 9 per cent at the end of December 2023 to 20.20 per cent in December 2024 and further climbed to 30.60 per cent by December 2025. By March 2026, classified loans had reached Tk 588,704 crore, accounting for 32.26 per cent of total loans amounting to Tk 1,824,668 crore. Stress tests also indicated that 18 scheduled banks faced risks of failing to withstand severe financial pressure.
International assessments have also highlighted growing vulnerabilities in Bangladesh’s banking sector. Recognising these challenges, the government introduced the Deposit Protection Ordinance, 2025 and the Bank Resolution Act, 2026. These measures provide Bangladesh Bank with greater authority to restructure troubled banks, establish bridge banks, and implement resolution mechanisms when necessary.
These legal developments acknowledge that banking distress can directly affect depositors’ rights and their ability to access funds. Yet the tax system does not currently provide a separate mechanism for interest income that remains inaccessible because of banking sector problems.
The central concern is that taxation should be based on genuine economic benefit. Merely adding an amount to an account statement does not necessarily mean a taxpayer’s financial capacity has increased. In the present circumstances, depositors are not voluntarily choosing to reinvest their funds; rather, they are unable to access their own money because of a bank’s financial difficulties.
This creates a potential imbalance. Withholding tax is designed to simplify tax collection and allow taxpayers to adjust advance deductions against their final liabilities. But when the principal amount itself remains unpaid, deducting tax from such interest effectively imposes a charge on income that the taxpayer has not yet enjoyed.
Such a situation places depositors under a dual burden. They face restricted access to their savings while also carrying additional tax obligations. Over time, this may weaken public confidence in formal banking channels and discourage people from saving through financial institutions.
The issue also raises questions about whether the existing withholding tax mechanism should be reconsidered. If banks are unable to release the funds, requiring immediate tax payment may create unnecessary financial pressure on ordinary savers.
To address the problem, several policy measures could be considered.
First, the National Board of Revenue could issue a clarification stating that interest income affected by bank liquidity problems should not become immediately taxable until the taxpayer receives the actual funds.
Second, a specific provision could be added to the Income Tax Act, 2023, making it clear that interest delayed due to banking sector restrictions, regulatory measures, or court orders would not be treated as taxable income before actual receipt.
Third, the withholding tax system could be reviewed so that deductions are made when interest is genuinely paid rather than merely recorded in accounts.
Fourth, if maintaining the existing taxation structure is considered necessary, taxpayers could be allowed deferred payment facilities for additional tax liabilities until they actually receive the funds.
Bangladesh’s banking sector is currently at a critical stage where rebuilding public trust remains a major challenge. Tax policies that ignore financial realities risk damaging not only individual taxpayers but also the broader culture of savings and financial inclusion.
A sustainable tax system requires a balance between government revenue needs and taxpayers’ legitimate rights. Revenue collection is essential, but it should not depend on taxing income that citizens have not been able to access or use.
As Bangladesh adapts to a changing financial landscape, addressing this gap in tax policy will be essential to ensure that taxation remains fair, practical, and consistent with economic reality.
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