Cutting corporate tax rate

FE Team | Published: March 10, 2014 00:00:00 | Updated: November 30, 2026 06:01:00

The chief of the National Board of Revenue (NBR) divulged late last week the government plan to cut the corporate tax rate and bring the same on a par with the maximum rate of individual tax, which is now 25 per cent, in phases. The first cut is likely to be made effective from the next fiscal. The corporate tax rate now ranges between 27.5 per cent and 45 per cent. The 'planned' move would certainly be greeted with a great deal of satisfaction by the corporate world which has persistently been demanding for such a cut in the tax rates on their annual profits. And they have a good reason behind making such a demand. The corporate tax rate in Bangladesh is unjustifiably high. The average of such tax rates is 38.5 per cent while the same is 28 per cent in Sri Lanka, 30 per cent in India and 35 per cent in Pakistan. Moreover, in the developed world, the corporate tax, in most cases, is less than what an individual pays as income tax. The situation is altogether reverse in Bangladesh.
The NBR chief, while disclosing the government move at a press briefing, admitted that the corporate tax rate in Bangladesh was high and expressed the hope that the planned cut would encourage better tax compliance. As of now there is no way of assessing the pros and cons of the rationale for such an expectation. The cut in tax rate to be made effective in the next fiscal and the response of the corporate world to the same would only be known following the collection of tax revenues from the companies, listed or otherwise. But the proposed reduction in corporate tax rate undeniably would create a favourable environment for attracting new investments, both local and foreign. Problems of infrastructure, scarcity of power and gas and bureaucratic complexities are already recognised hurdles to investments. But high corporate tax rate is yet another deterrent. Among others, low corporate tax rate is a factor that is weighed carefully by the foreign investors before making their decisions about investment.
The government move, though an encouraging one, might come as a surprise to many, particularly against the backdrop of the plan of the ministry of finance (MoF) to launch a Tk 2.5 trillion budget next fiscal and the downward revision of the tax revenue collection target by Tk 110 billion for the current fiscal. The latter target has been brought down following sluggish revenue collection performance due to the prolonged political unrest and the resultant slowdown in economic activities. The launching of any big budget in the next fiscal would obviously necessitate revenue collection on a much higher scale from tax and non-tax sources and the taxmen are expected to devise means to make the same available. The NBR has already identified a few items which would be taxed heavily in the upcoming budget. These items are reportedly harmful to human health and environment. The question is: Will such taxation be enough to compensate for the probable reduction in tax revenue collection following the corporate tax cut?
The major part of the revenue from the corporate tax comes from a small number of large taxpayer units (LTUs) belonging to manufacturing and services sectors. Side by side with their efforts to reduce the incidence of tax evasion and tax avoidance by both individual and corporate taxpayers, the taxmen would have to be innovative and practical in devising new tax measures. They might get better results, in terms of revenue mobilisation, from hiking the base price lines of certain products that they are authorised to do, rather than raising the rates of duties and taxes from existing sources. In fact, the traditional ways of fixation of tax rates and their collection are unlikely to deliver results compatible with the need for collection of more domestic revenue resources. The country's tax administration has gone through some reforms. But it certainly needs to go the extra mile to meet the revenue-related expectations.