Banking business of cooperative societies brought under the tax net in the proposed budget aims at maintaining discipline in operations of the entities.

Cooperative societies will have to pay tax at 42.5 per cent rates from July 1 next if they run any banking business along with their cooperative activities.

"We have noticed that majority of the cooperative societies are doing banking business, like scheduled banks. But they are enjoying tax exemption facility as cooperatives while banks are paying corporate tax at highest rate," said a senior revenue board official.

Recently, banking businesses by Destiny cooperative societies came under close scrutiny of the government law enforcing agencies including National Board of Revenue (NBR), Anti-Corruption Commission (ACC) and Bangladesh Bank.

Bangladesh Bank (BB) in an investigation has found Tk 7.06 billion embezzled and Tk 700 million siphoned off by Destiny Multipurpose Cooperative Society Limited.

In the Finance Bill-2012, the revenue board has withdrawn the tax-exemption facilities for banking activities of cooperative societies. The cooperatives are enjoying tax exemption facility on their banking activities under sub-section (1) of section 47 of Income tax ordinance, 1984.

The government amended the section by excluding the statement 'including a co-operative society carrying on the business of banking' in the Finance Bill-2012, from the list of tax exemption.

The official said illegal banking business in the name of cooperative activities is now under strict surveillance of the government. Tax authority amended the rule with an aim to check these irregularities.

Many cooperatives are operating in the country using the word 'bank' after their names to attract public confidence in them.

The cooperatives which collect deposits from persons other than their members will have to pay 42.5 per cent tax from the next fiscal, the official said.

People who are involved in cooperatives often start banking taking advantage of the existing weakness of law.

Earlier, a number of cooperatives -- Unipay2, ITCL, Jubok -- pocketed millions of taka of general people through illegal banking in the name of Multilevel Marketing business as cooperatives.

Former adviser and economist Hossain Zilliur Rahman said the move might have taken to bring the cooperatives under a discipline rather than revenue generation.

It can be called a 'protective step' to thwart financial irregularities of cooperative societies, he added.

"The cooperatives have a glorious past, but it is widely abused due to loopholes in law and bureaucratic complexities," he added.

There is no statistics on how many cooperatives are running their activities in the country.

Dr. Rahman, who is also founder of Power and Participation Research Centre (PPRC), said there is no study on this sector to find out the number of cooperatives.

The Financial Express/Bangladesh/ 12th June 2012