Doulot Akter Mala
High corporate tax in Bangladesh, compared to that of other countries, discourages both foreign and domestic investors from investing and expanding their existing units here.
Experts and industry-insiders hold this view, underpinned by comparative analyses of the taxation especially in neighbouring countries who net higher sums of investment capital on the float.
Corporate income tax in Bangladesh ranges from 25 to 45 per cent depending on nature and categories of companies.
Publicly traded companies generally are taxed at a rate of 25%. Banks, insurance companies and financial institutions are taxed at a 42.5% rate, with a lower rate of 40% available if the company is publicly traded. Mobile phone operator companies and cigarette manufacturing companies are taxed at a 45% rate. All other companies are subject to a 35% rate
Experts suggested long-term tax planning for facilitating investors, bridging the gap between individual and corporate tax rates for encouraging company formation in the country.
They preferred a competitive rate of corporate tax rate in Bangladesh compared to its neighbouring countries to attract investors-at this point of time when business-tax walls are being lowered elsewhere, including the latest deep cuts in the United States.
A significant amount of capital flows to other countries every year due to lucrative investment opportunities there compared to Bangladesh's, they pointed out.
Neighbouring India's government in its last year's budget decided to bring down the corporate tax rate to 25 per cent.
In its current year's budget, India cut the rate of corporate tax to 25 per cent from 30 per cent for micro-, small,-and medium enterprises having annual business turnover of up to Rs 500 million.
Rupali Chowdhury, president of Foreign Investors Chamber of Commerce and Industry (FICCI) in Bangladesh, said in the context of competitive economy, the corporate tax rate in Bangladesh is too high.
"It is discouraging for both local and foreign investors to invest in Bangladesh. The government should bring down the rate of corporate tax to 30 per cent for non-listed companies and 20 per cent for listed companies," she said.
Difference between listed and non-listed companies' corporate tax rates should be maintained at the present level until the country's capital market grows to a moderate level, she added.
Institute of Chartered Accountants of Bangladesh (ICAB) president Adeeb H Khan, also taxation subcommittee member of the Metropolitan Chamber of Commerce and Industry (MCCI), said cost of doing business in Bangladesh is already somewhat high because of infrastructural inefficiencies.
"In addition, if businesses have to pay one-third of their profits as corporate tax, it can be discouraging for them."
Also, investors have to pay 20 per cent tax on their dividend that they take as profit from the business, he added.
"Potentially, investor is thus paying around half of their profits in taxes," said the head of the ICAB.
Aminur Rahman, former income-tax policy member of the National Board of Revenue (NBR), said Bangladesh could consider providing a tax rebate to the company on employment generation as Pakistan recently incorporated the incentive into its tax measure.
Pakistan offers 2.0 per cent tax rebate for a company if it generates employment for 50 people.
"Addressing the country's unemployment situation and easing high rate of corporate tax, the tax measure can be considered in the budget," he added.
On India's recent budgetary measure setting a tax rate for a company having certain amount of annual turnover, he said such measure is not helpful rather taxing on the basis of nature of businesses of companies is important.
Humayun Kabir FCA, Taxation Subcommittee convener of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) and facilitator of Alternative Dispute Resolution (ADR), mentioned that the apex chamber has proposed that the government cut corporate-tax rate by 2.5 per cent for all types of companies in the upcoming budget for fiscal year 2017-18.
Higher disallowance for gross profit estimation by the taxmen also escalates the actual tax incidence on taxpayers, he observed.
Corporate taxpayers pay Advance Income Tax (AIT) at a rate of 5.0 per cent at import stage which is refundable after assessment in case of excess payments, but refund system hardly works here, he added.
Income tax should be imposed on the basis of income, not in advance, he argued.
One expert held the view that the tax men are found not that much interested in tax payments by thousands of private business firms that have taken registration from the Registrar of Joint Stock Companies and Firms (RJSC&F). A large number of these business units even do not bother to submit their annual tax returns. Had the national board of revenue been serious about collecting tax from these firms, it could have mobilised a substantial amount of revenue every year. Thus, this would have created scope to lower the overall corporate tax rate, he observed.
The expert raised another issue that, according to him, is rather unfair on the part of the NBR. He said the NBR, in many cases, is found unwilling to accept decline in profit or loss by a company under adverse circumstances.
Talking to the FE, tax officials, however, declined to admit high taxation as impediment to investment as there are a number of tax incentives offered for investment promotion.
They said investors in economic zones under Bangladesh Economic Zones Authority (BEZA) and Hi-tech Park Authority can enjoy a graduated rate of tax holiday on their investment.
Corporate tax contributes 80 per cent to the income-tax collection by the Large Taxpayers Unit (LTU) under the income tax wing of the NBR.
Country's commercial banks, non-baking financial institutions, mobile-phone companies, cigarette companies, and gas and energy sectors are the major source of corporate-tax receipts for the government.
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