But the reality is in stark contrast as the amount has not been refunded yet to the company. Currently the money, which is more than double of its net profit, is held up by the NBR and the company is in desperate efforts to get the tax refunded.
According to NBR, the company has paid a total of Tk 21.09 million as source tax from fiscal year 2013-14 to 2018-19. The owner submitted an application officially seeking tax refund, but the authorities are yet to respond to it.
This is not the lone case of harassment centering the source tax as hundreds of companies encountered similar incidents.
Jashim Uddin, president of the Federation of Bangladesh Chambers of Commerce and Industries (FBCCI), said the NBR holds up the refund of source tax for months, which eventually refrains the businesses from availing profit.
He also said the source tax is scaling up the production cost while the malpractice is inflicting extra hassle on businesses.
When the traders apply for tax refund, the tax officials give an impression that they are paying the amount from the government fund, alleged the FBCCI president.
He also voiced dissatisfaction over the source tax and said the practice should be eliminated.
“If there is a provision to refund the tax at source, then why do you collect it? I think it should be eliminated,” he said, adding that his trade body has already discussed the issue with the government.
According to the NBR, the source tax makes up some 60 per cent of the total amount collected as income tax. A total of Tk 420 billion was collected as source tax in the fiscal year 2019-20 while only Tk 2.36 billion was refunded to the businesses.
However, a tax official blamed the red tape for the delay in refunding source tax.
How the source tax gets stuck at NBR
The authorities have fixed separate gross profits (GP) for different sectors. The plastic packaging sector has a GP of 13 per cent. If a product costs Tk 100 from being manufactured to reaching the consumers, Tk 87 of the amount is spent for buying raw materials, paying workers' wages, operation cost, and other utility bills. The remaining amount – Tk 13 – is determined as gross profit by the tax officials while the net profit is fixed at Tk 5, excluding other expenses, including bank loan interest.
The businesses have to pay corporate tax at a rate of 30 per cent on the net profit. It means that Tk 1.5 needs to be paid as corporate tax against the net profit of Tk 5.
Meanwhile, the plastic manufacturer had paid 5 per cent source tax on raw material imports and 7 per cent at the supply phase. In total, he deposited Tk 12 as advance tax or source tax to the NBR.
The company is making a profit of Tk 5, but it has Tk 12 stuck at the NBR.
Syed Md Mohammad Nasir Uddin, managing director of Xclusive Can Limited, said they fix the product price considering the source tax collected at the import and supply phase.
If an importer manufactures the product himself, the authorities refund the source tax. As a result, the connecting industry entrepreneurs are struggling to survive due to the source tax and increasing VAT, he added.
Corporate tax also pains
The corporate tax has been slashed by 2.5 per cent in the proposed budget for the fiscal year 2022-23. The listed companies have to pay the tax at a rate of 20 per cent while the non-listed ones at 27 per cent.
But there is an obligation for the companies to spend more than Tk 1.2 million through the banks. It means a maximum amount of Tk 0.1 million can be spent through cash.
Difficulty lies here too as many companies spend a handsome amount on casual purposes and these cannot be done through the banking channel. Some companies spend much higher than the maximum expense ceiling for buying grocery items as they themselves arrange food for their workers.
If a company wants to avail the corporate tax-cut facility, it has to complete these transactions through a banking channel, instead of paying cash in exchange of grocery items.
FBCCI president Jashim Uddin termed the condition impractical and said it is holding back the businesses from availing the benefit of the corporate tax cut.