The loan deferral extended for one year


The government has decided to extend the loan deferral mechanism for one year until June 2022.

A press release from the Prime Minister’s Office (PMO) said that given the continued impact and uncertainties posed by the pandemic, all loans sanctioned as of June 30, 2020 would be eligible for postponement.

However, financial service providers (FSPs) could also negotiate with borrowers to revive / rehabilitate or foreclose non-performing loans (NPLs).

As of June 30 of last year, financial institutions had spent around 162.927 billion Nu (B). The NPL, which are loans with repayments over 90 days past due, was 16% at Nu 26.616B.

To ease the burden of repaying the loan, FSPs could extend the loan term of the deferred period or up to five years depending on the repayment capacity of the borrowers.

Incentives for regular repayments during the deferral period will also be considered. The FSF will continue to grant a 1% reduction in interest rates on term loans for another year, from July 2021 to June 2022, to borrowers who service their installments (after adjusting 50% of interest payment assistance) during the deferral period.

According to the press release, PSF will not capitalize the interest accrued during the period of suspension. This means that the total interest accrued between April 2020 and June 2022 will not be added to the principal amount. Borrowers could pay interest in equal installments after the end of the deferral period.

PSF will offer a one-year gestation period, during which no repayment would be required, until June 2022 for bridging loans or concessional loans granted to business entities under the monetary measures of the phase. II. The accrued interest will not be added to the principal during the gestation period. The total interest accrued from April 2020 to June 2022 will be payable in equal installments after the end of the gestation period.

The Royal Monetary Authority will publish standard operating procedures for the implementation of Phase III monetary measures.

Tax measures

In addition to the investment budget of 33%, the highest to date, planned for the 2021-22 fiscal year, additional tax measures are also extended until December 2021.

The deferral of income tax for the 2019 income year for tourism and relevant sectors, including entertainment sectors, will be reviewed on a case-by-case basis upon request from July to December 2021.

In order to enable businesses to settle their unpaid corporate and business income tax (CIT / BIT), the installment payment of income tax will be extended.

For industries, electricity charges can be paid based on actual consumption from July to December 2021. Payments will be considered for deferral on a case-by-case basis upon request. In order to ensure that the carry-overs target the sectors actually affected by the current situation, the ministries of finance and economic affairs will check the eligibility criteria during the extended period.

WiFi and electricity will be provided free of charge to hotels used as quarantine facilities until December 2021.

As the tourism and aviation sectors continue to be severely affected, the exemption from paying monthly rent and other charges for tourism-related businesses leasing public property will be maintained until December 2021.

According to the press release, the rationalization of tariffs, which was recently passed by parliament as “Tariff Act 2021” would stimulate economic activities, promote exports and limit inflation.

With existing tax incentives expiring on December 31, 2021, the press release said the government would review existing tax incentives and propose revised incentives to ensure business continuity and stability in addition to supporting a resilient economic recovery.

In addition, the effectiveness of the tax measures would be reviewed by December of this year and extended depending on the pandemic situation.

Edited by Tshering Palden

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