Foreign investors worried over income tax law provisions

Foreign investors in Bangladesh yesterday expressed concern over some provisions of a proposed income tax law alongside measures, including one on increasing the minimum tax on carbonated beverage makers. 

The National Board of Revenue (NBR) wants to slap a 5 per cent tax on gross receipts or turnover of carbonated beverage makers from next fiscal year. It is currently 0.6 per cent.

The increase is prohibitive and detrimental to business, said Naser Ezaz Bijoy, president of the Foreign Investors' Chamber of Commerce and Industry (FICCI), at a press conference in Sheraton Dhaka.

"It is not logical to hike the tax rate suddenly," he said at the event organised by the FICCI to share its views on the proposed budget for fiscal year 2023-24 and on an Income Tax Bill-2023 placed in parliament last week.

The apex chamber of more than 200 multinational companies and foreign investors welcomed the bill but added that some provisions would have implications for the businesses and employees in Bangladesh.

The FICCI said the increase in minimum tax would increase the effective tax on companies and possibly have implications on employee earnings.

Besides, as per the bill, individuals could no longer enjoy exemptions on income from Workers Profit Participation Fund, mutual fund and dividend to certain limits.

Under the proposed law, the NBR wants to tax provident funds. This will substantially reduce the net income of individuals, the FICCI said.

The new law also seeks to make submission tax returns compulsory by government-recognised private funds such as provident funds and gratuity funds.

"Taxing government-recognised private provident funds will reduce earnings of the beneficiaries while exempting government provident funds from taxes is discriminatory," said the FICCI.

The trade body said a provision has been included in the bill to impose tax on interest on foreign loans, which was not desirable at a time when Bangladesh needs foreign currency to tackle the current economic challenges.

"This will lead to a decline in foreign currency inflow. And because of tax on interest, cost of fund will go up and consumers will be affected. This is absolutely detrimental to business and economy," said Naser.

The FICCI opposed the plan to disallow entire expenses of a company if it fails to provide proof of submission of tax return by third party vendors. It should be omitted, it said.

The foreign investors' chamber said it urged for relaxing the rule on limiting cash transactions to Tk 36 lakh for companies to enjoy a reduction in corporate tax.

Limiting cash transactions for corporates and organisations will put a cap on development as the population of the country is yet to wholly adopt cashless transactions, it said.

Instead of setting a definite number, the government should allow companies themselves to decide on the percentage of transactions they will achieve in the cashless mode and set a target to achieve the 100 per cent cashless goal in the next five years, said the FICCI.

The FICCI also raised concerns over a proposal to increase land transfer tax, saying this would prompt people to refrain from disclosing actual property prices in formal documents. Instead, they will use officially fixed land prices, it said.

"This will incentivise tax evasion," said Naser, adding that foreign investors who want to do business by complying with the rules would also face difficulties because of the spike in the land transfer tax rate.

"Which is why instead of increasing the transaction cost, property tax should be brought down substantially and mouza value must be periodically updated to reflect the market price," he said.

Sazzad Rahim Chowdhury, coordinator of the FICCI's Tariff, Taxation and Regulatory Affairs Committee, said provident funds have been taxed under the proposed law. It will reduce benefits for employees, he added.

Citing the plan to impose tax on the interest of foreign loans, Sazzad, chief financial officer of Berger Paints Bangladesh Ltd, said it would not be favourable for businesses and the economy.

Debabrata Roy Chowdhury, a member the FICCI's Tariff, Taxation and Regulatory Affairs Committee, said a retrospective effect has been allowed to changes made in the income tax law during the passage of the next fiscal year's budget.

"This affects businesses planning. We request the authority to give progressive effect to the new law," he said.

Citing the hike in minimum tax on carbonated beverage makers, Snehasish Barua, consultant of the FICCI's Tariff, Taxation and Regulatory Affairs Committee, said carbonated beverage makers would see a 830 per cent increase in tax.

They will need to make 17 per cent profit to bear tax, he said, adding that this would be tough.

Deepal Abeywickrema, managing director of Nestle Bangladesh Ltd and chairman of the FICCI's Tariff, Taxation and Regulatory Affairs Committee, also spoke at the event.