• Thursday, September 18, 2014

Corporate tax structure to drive away firms from stockmarket

Analysts say

Sajjadur Rahman

The proposed corporate tax structure will discourage companies from joining the stockmarket, analysts said.
Their comments came after Finance Minister AMA Muhith announced a cut in corporate tax for non-publicly traded companies by 2.5 percentage points to 35 percent for fiscal 2014-15. The minister believes the move will attract foreign direct investment and create much-needed jobs.
However, a company has to follow Bangladesh Accounting Standards and Bangladesh Financial Reporting Standards to get the benefit. In case of false reporting, the company concerned will be fined.
Tax rates for other types of companies remain unchanged -- at 42.5 percent for banks, insurers and non-bank financial institutions, 37.5 percent for merchant banks, 40 percent for publicly traded cigarette manufacturers, which is 45 percent for non-listed cigarette manufacturers. The tax rate of 27.5 percent for publicly traded companies, subject to certain conditions, also remains unchanged.
Prof Osman Imam of Dhaka University said listed companies were more compliant than the non-listed ones and they disclosed lot of information.
He said usually the non-listed companies do not disclose information and evade their taxes. But these companies have been given incentives in the proposed budget.
There are more than 100,000 companies registered with the Office of the Registrar of Joint Stock Companies and Firms, but less than 2 percent of the firms pay taxes, according to revenue officials.
“Local companies will no longer be interested to go to the capital market,” said Osman, adding that very few non-listed companies paid taxes and yet they were given incentives.

However, Zaid Bakht, research director of Bangladesh Institute of Development Studies (BIDS), said the proposed slash in corporate tax was just a beginning as the rate was higher than that in many countries, including the regional ones.
He hoped the rate would be rationalised in future.  
There have been discussions over the past several weeks that the government was going to cut the existing 42.5 percent corporate tax rates for banks, insurers and financial institutions, which are seen as the cash cow for the government. Though these companies are listed in the capital market, they have to pay a high rate of tax.
Prof Osman said once banks used to earn abnormal profits, but the situation is different now. The tax rates should be rationalised for these companies.
“Profit should not be the criterion for imposing taxes,” Zaid said on the tax rates for banks, insurers and financial institutions. “It should be considered that these companies are contributing to the country's economic development."
A chief executive of a private bank said, “The government gets lot of taxes from us and it continues to affect us, no matter how our business is going.”
Zahid Hussain, lead economist at the World Bank's Dhaka office, said corporate tax in Bangladesh was one of the highest in the world and it should be rationalised.
Analysts, however, welcome a cut in turnover tax for all companies to 0.3 percent from present 0.5 percent.

Published: 12:00 am Friday, June 06, 2014

Last modified: 4:40 am Friday, June 06, 2014

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