Concern brews about cumulative corporate-tax buildup from ancillary fiscal measures under the new income-tax law Bangladesh is poised to pursue, while redefining NGOs and academia as corporates is also decried.
The Income Tax Law 2023 might come into antedated effect from June 22, 2023 with the issuance of a gazette notification incorporating the amendments of the bill brought by the parliamentary standing committee concerned.
However, the income-tax rates under the Finance Bill 2023 would take effect from July 1, 2023 after the parliament adopts it.
The national parliament of Bangladesh passed the new act on June 18. The new law is replacing the existing Income Tax Ordinance1984 that misses out many fiscal developments of the day.
The new income-tax law stipulates separate rule for withholding taxes to simplify the process of mobilisation of source taxes that account for a major share, around 70 per cent, of the direct-tax receipt.
Although the rate of corporate tax remains unchanged for the companies, tax experts say its effective rate under the new law will multiply with inclusion of a number of fiscal measures.
According to a research by experts at Utility Bidder in January this year, corporate-tax rates in Bangladesh have increased 5.0 per cent in last 10 years to stand as the third-highest in the world.
Corporate-tax rate varies from 22.5 per cent to 45 per cent on the basis of nature of businesses in Bangladesh.
Taxation and tariff committee chairman of the Institute of Chartered Accountants of Bangladesh (ICAB) Md Humayun Kabir thinks there will be 'cascading impacts' of tax deducted at source imposed on importers and distributors, treating TDS as minimum tax, increasing minimum tax on gross receipt for certain businesses, broadening definition of perquisites inclusive of 'incentive bonus' on it.
The government has also levied environmental tax on vehicles owned by companies and restricted setting business losses against other incomes, he mentions regarding the cumulative incidence of corporate tax.
"The measures will increase tax burden on companies," he predicts.
Also, the new act incorporates a provision regarding corporate taxpayers limiting the adjustment of losses with income from other sources.
Earlier, companies were permitted to offset losses from their business against income from other sources, leading to reduced tax incidence.
However, the current proposition aims to restrict the adjustment of business losses solely within the same income category.
Minimum tax requirement on carbonated beverage industries--eight times hike--might jeopardize existing investors' plan on further expansion.
According to the new act, incentive bonus has been classified as perquisites, resulting in an augmented tax liability for companies.
As per law, a company will have to pay tax for perquisites above Tk 1.0 million. The inclusion of incentive bonus in the perquisite will raise the total perquisite expenses and company will have to pay tax when it crosses the limit.
The provision might increase the tax liability of the multinational companies (MNCs), sources said.
New environmental surcharge levied on both individuals and companies may escalate tax liability of the companies as most companies have ownership of multiple cars.
According to the new act, non-governmental organisations and educational institutions would be treated as company along with other vast range of entities.
Academics and NGO sponsors are raising their voice against the provision that defines them as corporates that naturally subjects them to payment of corporate tax as do business corporates
Welcoming the new act, Dhaka Chamber of Commerce and Industry (DCCI) president Md Sameer Sattar said withdrawal of the proposed regressive provision on submission of wealth statements for foreign tours is a positive step.
He suggests reconsidering the provision treating NGOs and educational institutes as companies, for encouraging social work and facilitating growth of quality education.
The Utility Bidder research says corporate-tax rates fluctuate all across the world and they can change quite frequently, as they have in many countries over the past decade, and Bangladesh has seen a 5.0-percent increase in rates over the past decade.
It mentions that the Maldives has seen the biggest corporate-tax-rate increase over the past 10 years. Between 2012 and 2021, the tax rate had increased 15 per cent, higher than in any other country.
Comoros has the highest tax rate in the world, 50 per cent in 2021.
Countries such as the Bahamas, Bahrain, the United Arab Emirates and Vanuatu have zero-rated tax, and are known as tax havens. Although corporate-tax rates are set at 0 per cent in these countries, customs and import fees are often higher to make up the deficit.
Microsoft has been named as the company paying the highest amount in corporation tax in the world--more than £2.7 billion. In second place is JPMorgan Chase and Co at £2.3 billion, followed by Amazon at £1.7 billion.
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