They also demanded the government to restructure corporate tax rates.

The NBFIs were exempted from paying tax on interest of term deposits but the budget for the 2005-06 fiscal year imposed the tax, said A Quadir Choudhury, chairman of Bangladesh Leasing and Finance Companies Association (BLFCA), while briefing a group of reporters in Dhaka recently.

"So, we request the government to withdraw the tax in the upcoming budget. The withdrawal of AIT will strengthen the deposit mobilisation capacity of the NBFIs, paving the way for accelerating their investment activities in the productive sectors of the economy," he said.

Anis A Khan, vice-chairman of the association, said restructuring of the 35 per cent corporate tax for the listed NBFIs and 40 per cent for non-listed ones will encourage more NBFIs to get listed on the stock exchanges.

Now, the corporate tax rate for banks, insurance companies and financial institutions is 45 per cent.

"The same tax rate of banks and NBFIs should not be justified," said Khan, also managing director of IDLC.

He said about 40 per cent of the banks' incomes come from their wide range of operations like exports, imports, trading, industrial credit, in-land and foreign remittance, issuance of bonds and a host of other fee-based income channels, though the NBFIs are not allowed to do such jobs.

Choudhury said imposition of tax on interest above Tk25,000 is acting as a disincentive for issuance of zero coupon bonds. The Finance Act 2005-06 imposed the fresh tax.

Investors are not interested to subscribe the zero coupon bonds as it is less attractive when compared to other instruments like fixed deposit receipts (FDR) of banks, said Choudhury, also the managing director of Phoenix Leasing Company Ltd.

The NBFIs like IPDC, IDLC and United Leasing floated zero coupon bonds in 2004 and 2005 for institutional investors but the fresh imposition of tax on the bonds is discouraging other NBFIs to issue the same product.

Zero coupon bonds are issued to strengthen the resource mobilisation capacity of the NBFIs and also help diversify the traditional financial market.

The BLFCA chief said they held recently meetings with the National Board of Revenue (NBR) and the Bangladesh Bank and urged them to address the core problems.

Demanding a consistent policy support, the BLFCA leaders said it was a pre-requisite for sustained growth of the NBFIs, which have emerged as an alternative source of finance.