Corporate tax cut won’t pay off
Despite a 2.5 percentage point corporate tax reduction, listed and non-listed companies might end up paying more tax than that last year because of a new plan to increase the tax deducted at source (TDS), said the ICAB yesterday.
The National Board of Revenue (NBR) seeks to hike the TDS to 7 per cent from 5 per cent for local supply while keeping it unchanged at 5 per cent at import, said The Institute of Chartered Accountants of Bangladesh (ICAB).
If the contradiction is not addressed, it shall certainly not bring relief for local entities encouraging industrialisation and foreign direct investment in Bangladesh, said Mahmudul Hasan Khusru, president of the apex body of chartered accountants.
The ICAB made the observation at a virtual press conference organised to share its analysis on the proposed national budget for fiscal 2021-22.
It welcomed the corporate tax reduction, citing that it was higher than that in similar economies, including in neighbouring countries. In a presentation of proposed measures in the Finance Bill 2021, Snehasish Barua, convener of the ICAB's tax and law committee, said the effective tax being charge on import-dependent firms, especially suppliers, would be higher following the TDS hike.
"Change in tax rate could have been more beneficial to the business had the rate of tax deduction at source been reduced," he said. He also cited a new rule requiring companies to make payment of over Tk 50,000 through formal financial channels for purchase of raw materials.
This is inconsistent with the provision of VAT and SD Act, 2012 where firms are required to use formal banking channels for payments of over Tk 100,000, he said.
The ICAB also suggested that the government set a high growth target for the budget, pointing out that achieving the target required an integrated transition in all areas of the economy, which was difficult but not impossible.
The institute, however, said tax exemption in various industries, particularly for agriculture and agro-based industries and on building hospitals outside the major cities would ultimately help create new jobs.
It also welcomed proposed tax breaks for cloud services, system integration, e-learning platforms, e-book publishing, mobile application development services and IT freelancing providers until 2024.
But the body did not support the move to increase tax on mobile financial service providers.
The ICAB lauded advance tax applicable on imported goods for production purposes being reduced to 3 per cent from 4 per cent, saying it would reduce the producers' current capital requirements.