Tax hike to weigh on compliant businesses: FICCI

The Foreign Investors' Chamber of Commerce and Industry (FICCI) yesterday termed reform measures in the proposed national budget "positive" but warned that implementation of certain tax measures may lead to unintended burdens on industries and individuals.

The FICCI, which represents around 210 member companies from 35 countries, expressed concern over an increase in the tax burden on compliant individuals and businesses.

The chamber said that under the revised tax slabs, salaried individuals earning between Tk 70,000 and Tk 100,000 per month may face a 50 percent–60 percent higher tax burden.

Meanwhile, those earning between Tk 120,000 and Tk 175,000 may experience an increase of 20 percent–30 percent, it said.

"This could significantly reduce disposable income for the fixed-income group, affecting consumption and quality of life," said FICCI President Zaved Akhtar at a post-budget press meet at the chamber.

Finance Adviser Salehuddin Ahmed unveiled a Tk 7,90,000 crore national budget on June 2, which is one percent lower than the proposed budget of the outgoing fiscal year 2024–25.

The FICCI said the increase in minimum tax—from 0.6 percent to 1 percent for companies and from 0.25 percent to 1 percent for individuals—would adversely impact small and medium enterprises, loss-making companies, and inflation-stricken individuals.

"For instance, a company earning no taxable income will still be liable to pay a 1 percent tax on turnover, creating further strain on struggling entities," it said.

Another point of concern is the imposition of a "discriminatory" 27.5 percent corporate tax rate on listed companies with less than 10 percent of shares offloaded through initial public offerings (IPO), it said.

"Furthermore, the benefits of reduced-rate tax for companies engaging in cashless transactions have been withdrawn. This, FICCI believes, goes against the goal of deepening capital markets and attracting quality listings," said Akhtar.

The chamber also highlighted the steep increase in value-added tax (VAT) on online sales—from 5 percent to 15 percent—saying it would likely hinder the growth of Bangladesh's emerging digital commerce sector.

Similarly, the rise in customs duty on beverage concentrates—from 10 percent to 15 percent—could negatively impact consumer prices and industry margins, it added.

These will lead to lower GDP and consequently lower private investment, be it foreign or local, said Akhtar.

The FICCI reiterated its longstanding recommendation for a simplified and harmonised VAT system with a single rate and a standard input credit mechanism.

"The chamber appreciated the government's continued push towards digital transformation through automation in tax administration and the implementation of the National Single Window," it said.

The FICCI welcomed initiatives to modernise the tax administration and to separate tax policy from tax collection through the establishment of separate entities.

Akhtar said the authority to offer tax exemptions was shifted to parliament from the National Board of Revenue (NBR), and a bar was placed on allowing tax exemptions retrospectively.

These are great examples of good reforms taken in the right spirit and are commendable steps taken in the budget, he said.

However, reforms required for expanding the tax net were not seen. It emphasised the need for realistic revenue targets and effective execution plans to avoid creating undue burdens on compliant taxpayers.

Naser Ezaz Bijoy, a former president of the FICCI, said the government was raising the tax rate to increase its tax collection, but it was creating pressure on existing and compliant taxpayers.

It should rather reduce the tax rate and work on improving compliance, as compliance can raise tax collection, he added.

Snehasish Barua, a chartered accountant and managing director of SMAC Advisory Services Ltd, said, "We are killing the golden goose."

Whenever the government needs more tax, it follows a top-down approach and searches for a way to raise the tax rate on existing large taxpayers. It puts pressure on them, which may impact job creation, he said while delivering a presentation.

Rupali Chowdhury, another former president of the FICCI, said frequent changes in the tax rate for several sectors ultimately had a significant effect.

She sought automation in all processes of VAT and customs so that hassles for taxpayers are reduced and none can evade tax.