Tax reduction to discourage cash transactions
The 2.5 percentage points corporate tax rate cut will encourage firms in Bangladesh to move away from cash transactions, said Naser Ezaz Bijoy, president of the Foreign Investors' Chamber of Commerce & Industry (FICCI).
The government has proposed a cut in the corporate tax rate by 2.5 percentage points for listed and non-listed companies.
Firms will have to carry out most of their transactions through banks and mobile financial services to avail the benefit. They also can't spend and invest up to Tk 12 lakh using cash.
The move by the National Board of Revenue (NBR) is aimed at encouraging formal transactions, expediting the process of making the economy cashless, and generating more revenues.
Naser described the initiative as very positive and constructive.
"This will discourage cash transactions and we, from the FICCI, recommended this," he said in a phone interview on the tax and budgetary measures proposed by the finance minister for the next fiscal year.
FICCI members contribute around 90 per cent to the foreign direct investment in Bangladesh and have generated more than 50 lakh jobs, directly and indirectly, according to the apex body of foreign investors
The FICCI thinks companies will give more effort to come out of cash-based transactions if the differentiation in tax benefits is higher.
"The more incentive you provide, the more tendency there will be to take the benefit," Naser said.
He called for raising the ceiling for cash transactions initially.
"The limit should be scaled back gradually to bring it down to Tk 12 lakh. Otherwise, the purpose will remain unattained," he said, adding that the banking system and mobile financial service providers are capable of handling such transactions.
FICCI members contribute around 90 per cent to the foreign direct investment in Bangladesh and have generated more than 50 lakh jobs, directly and indirectly, according to the apex body of foreign investors.
During the conversation, Naser also lauded some initiatives of the National Board of Revenue (NBR) and added there have been attempts to make budget and tax measures business-friendly.
The uniform corporate tax rate of 10 per cent for all export-oriented green factories and 12 per cent for conventional factories, like that of the garment industry, is hailed by the noted banker as a step toward treating all exporters equally.
"This will create a level-playing field for all exporters. Going forward, we will expect some more initiatives to diversify exports," he said.
Besides, the scope extended to the companies with a single production unit to get the value-added tax registration and the reduction of the tax deducted at source for the supply of raw materials are good moves.
According to the FICCI, the effective tax rate is the main consideration of investors, not the nominal tax rate.
"If the effective tax rate declines in line with the reduction, we will be able to say it is a good move. Now, it is time to see the execution," said Naser, also the chief executive officer of Standard Chartered Bangladesh.
"For us, it is important that companies get the benefit of the corporate tax cut."
However, he says, companies will not benefit from the reduction if expenses are disallowed by taxmen.
This is because if expenditures are disallowed, the amount is treated as the profit and thus taxed.
In this regard, Naser suggested the revenue administration cut the discretionary powers of tax officials.
He cited the NBR's plan to disallow the contribution of companies to the Workers' Profit Participation Fund, saying disallowing such expenses would affect compliant firms.
"It has multiple effects. The tax burden will increase significantly. This will be very detrimental to companies," he said, urging the tax authorities to reconsider promotional expenses.
Naser opposed the government's bid to offer unquestioned amnesty to legalise offshore properties and funds.
"The FICCI disagrees with the proposal from the ethical point of view. We also believe that it is detrimental to compliant taxpayers and will encourage tax evaders to benefit from the lower income tax rate and take the money out of the country in the next 12 months to avail the facility."
"This will put further pressure on the foreign exchange market."
While presenting the budget on June 9, the finance minister tabled the proposal for giving the taxpayers the opportunity to disclose their overseas assets without facing any question on the payment of 7 per cent to 15 per cent of tax, depending on whether the asset is movable or not and whether the asset would be repatriated to Bangladesh.
Speaking about the overall budgetary measures for the next fiscal year, Naser said, "Despite difficult times, the government has really tried to make the budget business-friendly."
There are areas that need to be addressed, according to the FICCI chief.
"The allocation for food security should have been increased this year."
At the same time, he said, the decision on the large and mega projects should be taken carefully since they carry downside implications.
"If projects are delayed, there will be cost overrun."
The banker urged the government not to defer the implementation of the projects related to job creation and connectivity since they will affect the industries that have been set up to support the schemes.
"You will have to think through to understand the implications of projects. And the cost should be reduced wherever possible because we need fiscal space to tackle challenges in this ongoing difficult period."
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