Businesses get tax boost

By the time you pick up this newspaper, you might have already been aware of the major changes in personal and corporate tax rates proposed for the next fiscal year.

Except for restructuring of wealth surcharge tax slabs and reintroduction of 35 percent surcharge on super rich with net wealth of over Tk 50 crore, there is no change in terms of personal income tax.

For an individual taxpayer, it's a relief that he or she will continue to pay taxes at the same rate. Yet, taxpayers in the lower income threshold will be worse off because of rising living cost.

A major disclosure, which may bring initial cheer among entrepreneurs, is 2.5 percentage point cut in tax rates for both listed and non-listed companies at the stock exchanges, and 25 percent tax rate for One Person Company (OPC).

The government has reduced the corporate tax rate for the second consecutive year for non-listed companies -- a move aimed at boosting investment and also raising private investment to GDP ratio which remained almost stagnant at around 23 percent.

Tax rate for non-listed companies that include most of the multinational companies was 37.5 percent a decade ago. The new rate for those is 30 percent. 

And the tax rate for listed companies is 22.5 percent.

There are some tax exemption offers too to encourage domestic manufacturing for sectors such as production of home appliances and milk and dairy items, establishment of hospitals, IT hardware and IT Enabled Services, automobile manufacturing, and vegetable and fruit processing.

The measures are expected to create enthusiasm among investors.

However, the tax rate remains unchanged for banks, financial institutions, insurance companies, mobile phone operators, and cigarette and tobacco firms.

But there is bad news for Mobile Financial Service (MFS) providers. They are going to be in the league of financial institutions that have to pay 37.5 to 40 percent corporate tax depending on whether they are listed or not.

Knowing the major changes, you may wonder how the National Board of Revenue will achieve the income and corporate tax collection target in the next fiscal year, especially when businesses have suffered income losses and many have lost jobs; and when prospect of a rebound in the economy looks uncertain in the face of second wave of coronavirus pandemic.

The NBR collects 32 percent of the tax revenues though personal and corporate taxes. The rest comes from Value Added Tax and import tariff.

It has been tasked with collecting Tk 106,000 crore in direct taxes in the next fiscal year, up 10 percent from the revised goal of Tk 97,000 in the outgoing fiscal year.

Given the sluggish growth of income tax, questions may arise: from where the NBR plans to collect the increased amount of taxes? What are the measures to widen the tax net, bring people with taxable income under the net and catch evaders? Are the existing taxpayers going to face higher scrutiny and questions from taxmen?

The answer, apparently, is yes.

As per the proposed measures, taxpayers, particularly businesses, are going to face tougher scrutiny of their transactions. Transactions through mobile financial services (MFS) and other digital means have been acknowledged as bank transfers along with transactions through crossed cheques.

And transactions through bank transfers, including MFS, have been made mandatory for payment of over Tk 50,000 made by businesses. This applies to purchase of raw materials too.

MFS has also been included in the modes of payment for rent for use of commercial or residential space and salary payment of above Tk 15,000.

By introducing the new measures, the government aims to encourage transactions through formal channels and curb the scope for tax evasion.

The rules of transactions through MFS and banking channels are going to be introduced for payments to contractors by public agencies and private organisations.

Source tax collected from payments to contractors accounted for one-fifth of the total withholding taxes at Tk 41,800 crore in fiscal 2019-20. Total income tax collection was Tk 73,000 crore during the period, shows provisional data.

"By limiting the scope for informal payment and by introducing rules to formalise transactions for firms and contractors, we expect to get an increased amount of taxes," said a senior NBR official seeking anonymity.

Also, the tax authority wants to hike advance income tax on transfer of property to 10 percent from the existing 5 percent.

Besides, recruiting agencies will be brought under the tax net. They will have to pay Tk 50,000 for issuance or renewal of a licence.

Importers of alcohol and perfume are also going to face higher import taxes.

The NBR proposed reducing the rate of depreciation for ordinary buildings to 5 percent from 10 percent and to 10 percent from 20 percent for factory buildings. This is likely to erode the gains businesses are going to make from the 2.5 percent tax cut.

To expand the tax net, the NBR recommended introducing rules that anyone purchasing state-sponsored savings certificates of more than Tk 2 lakh and keeping over Tk 2 lakh of deposits at post offices will require to obtain Taxpayers Identification Number (TIN).

There will be higher taxes on incomes of over Tk 30 lakh a year from fish farming, poultry, shrimps and fish hatchery.

TINs will be required for approval of building designs and registration of cooperatives.

However, there is relief for certain sectors.

Turnover tax for firms has been reduced to 0.25 percent from the existing 0.5 percent.

Besides, tax-free turnover from businesses run by women entrepreneurs has been fixed at Tk 70 lakh, up from Tk 50 lakh forall types of entrepreneurs now. Advance income tax on import of ocean-going ships and raw materials of cement has been reduced by one percentage point.