Businesses want to survive during coronavirus pandemic. Businesspersons demand various tax and duty cuts plus an easing of corporate tax and deducting value added tax (VAT). Their main demand is now a business-friendly taxation.
Corporate tax is higher in Bangladesh than competitive countries. Production-oriented companies face liquidity crises, having to pay advance tax. The companies couldn’t invest in advertising and marketing as much as they want during this sales slump. And there are the fines that can be imposed for avoiding taxes. Businesses are already facing trouble during the pandemic. Despite the losses, they still have to pay at least minimum taxes. So businesses of various sectors expect tax and duty cuts in the upcoming budget.
The National Board of Revenue (NBR) is also relatively soft on the matter of tax and duty cuts. Deduction in corporate tax is likely. Advance VAT may decreased along with various other reductions. New business enterprises in information technology sector may come under tax holiday facilities. Agriculture, fruit and dairy processing industries, electronic products etc. may be added to the tax holiday list. However, widespread opportunity for money whitening may be limited.
The NRB is to have a target of Tk 3.3 trillion (3.3 lakh) tax and duty collection in the next fiscal – a Tk 290 billion (29,000 crore) more than the revised target for current fiscal.
Former president of Dhaka Chamber of Commerce and Industry (DCCI) and director of AK Khan Group Abul Kasem Khan told Prtohom Alo tax and duty cuts will have to be availed in the next budget to help business survive in the context of coronavirus. Besides, economic freedom will have to be given to normal taxpayers to encourage consumer spending. Business is recovering now. If advance tax and advance VAT reduce at various levels, then cash flow will increase in businesses. They won’t fall in crisis. If money remains available, operating business won’t be a problem either. Besides, if corporate tax is reduced, profit will increase and that will regenerate investment opportunities.
More corporate tax
Businesses of the country have long been demanding corporate tax to be reduced. The rate of corporate tax is 32 per cent for companies not listed in the stock market and 25 per cent for companies listed in stock market. Currently, corporate tax is 45 per cent for mobile operators as well as cigarette and tobacco product manufacturing companies; 37 per cent for banks listed in the stock market and 40 per cent for banks not listed in stock market. Usually, tax rate for the company listed in stock market is considered as corporate tax and there are 1,000 companies listed in stock market. About 35,000 companies pay tax at various rates.
Corporate tax is higher in Bangladesh than neighbouring India and Pakistan and even than South East Asian countries including Vietnam, Thailand and Malaysia. Rate of corporate tax is 15-30 per cent in India whereas most of the companies in Bangladesh pay tax at a rate of more than 30 per cent. Rate of tax for banks is 35 per cent in Pakistan - a five per cent up from the tax banks are paying in Bangladesh. Others companies in Pakistan pay at a rate of 29 per cent and small companies pay at 22 per cent. The average rate of tax is 20 per cent in Vietnam.
According to sources at NBR, corporate tax may decrease by 2.5 per cent for in two categories of companies namely listed and in stock market in the next budget. No change likely for other companies including banks, mobile operators and cigarette companies.
One of major demands placed by businesses is withdrawal of minimum tax on turnover irrespective of profit and loss. Currently, a company with an annual turnover of over 30 million (3 crore) must pay a five per cent tax on its transactions. The rate is one and two per cent for cigarette companies and mobile operators respectively. New company face more problems for imposing such tax. Sources at NBR said businesses are unlikely to get any good news on it in the upcoming budget.
Sales are not good since the beginning of coronavirus pandemic, but traders can’t spend adequately on marketing their products. There is no tax on the spending of up to five per cent of the company’s transactions for publicity and marketing. Business demand increasing this limit. They claimed five per cent to 10 per cent of transactions is spent for marketing. If sales grow, tax will increase as well. Sources at NBR said up to one per cent of total transactions spent for publicity and marketing may be made tax free.
Widespread scope of money whitening may stop
There has been widespread scope to whiten black money in the current fiscal. Black money can be whitened by paying 10 per cent tax after purchasing land and apartments and investing in the stock market, savings certificates and fixed deposit. Even cash was allowed to be whitened. More than 10,000 people took advantage of this in the first 10 months (July-April), mostly whitening cash. About Tk 140 billion (14,000 crore) was whitened during this period.
Giving such easy scope to whiten money does injustice to honest taxpayers. An honest taxpayer pays tax at a rate of maximum 25 per cent while owners of black money legalised their money by paying a tax at 10 per cent. Businesses spoke against easy scope of money whitening at pre-budget discussion. Sources at NRB said such such widespread scope may no appear in the next fiscal.
Businesses want relief through less VAT
Almost all businesses saw a drop in their operations during the coronavirus period. So they want VAT be reduced. Businesses pay four per cent of VAT in advance for importing. They have to wait for the refund for several months. VAT is realised in advance before importers of raw materials, intermediate and finished goods receive their products. As a result, a large amount of money remains idle at the NBR. Many businesses face crisis of operational costs because of coronavirus. So, small and big businesses want withdrawal of advance VAT. According to sources at NRB, advance VAT is likely to be reduced by one per cent to three per cent in the manufacturing sector in the next budget.
Many traders couldn’t submit returns because of Covid-19 restrictions and as their earning dropped. Sources at NBR said, if a company fails to submit VAT return, a two per cent interest on its VAT amount is imposed as fine and it is likely to decrease to one per cent in a bid to give businesses relief during disaster-time.
If a company is found to have evaded VAT, there is a provision for imposing fine double than the amount it evaded. It may be reduced to equal amount.
However, there is no VAT for transactions up to 5 million (50 lakh). Businesses had demanded the limit be raised to 10 million (1 crore), but NBR didn’t go for it. Tax limit of 30 million for turnover is also not going to rise either.
No relief in tax-free income limit
The tax-free income limit for individual taxpayers increased to Tk 300,000 last year. Income of many tax payers dropped during the pandemic. Many lost jobs, many businesspersons faced loss. In India, individuals pay tax at a rate of five per cent against an income of Rs 250,000 to Rs 500,000 annually. While individuals in Bangladesh pay tax at a rate of five per cent for every Tk 100,000 after annual income exceeds Tk 300,000. In that case, taxpayers with limited income receive more tax rebates.
On the other hand, the tax-free income limit is Rs 600,000 for salaried individual and Rs 400,000 for non-salaried individual in Pakistan.
There is nothing called minimum tax in India and Pakistan whether taxpayers in Bangladesh must pay a minimum tax of Tk 3000 to Tk 4000. The NBR is not for raising the tax-free income limit for individuals in the upcoming budge. Currently, there are 6.2 million (62 lakh) tax identification number (TIN) holders. Only 2.5 million (25 lakh) of them submit returns annually.
* This report appeared in the print and online edition of Prothom Alo and has been rewritten in English by Hasanul Banna