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Corporate tax not rising for compliant listed companies

DOULOT AKTER MALA | May 28, 2024 00:00:00

Tax rates for publicly-listed companies may remain unchanged in the upcoming fiscal year while some changed parlances could make uncertain the availing of lower tax rates tagged with conditions, sources say.

However, although the tax rate would remain same, in principle, the base rate may see a rise for the publicly listed companies which may, again, go down to the existing rates if the condition of cashless- transaction limit is complied with.

However, the tax rates for listed companies with free float up to 10 per cent and above with cashless transactions would be 20 per cent and 22.5 per cent as in the current fiscal year.

Noncompliance with the cashless-transaction limit has to be paid for-the rates will be higher at 22.5 per cent and 25 per cent tax respectively.

However, taxmen may get 'if conditions are met' instead of existing 'failure to meet the conditions' incorporated into the Finance Bill 2024.

A former tax official says such changed parlance may lead to uncertainty over availing the lower tax rate as it is subject to discretion of the Deputy Commissioner of Taxes (DCTs).

"If the base rate of corporate tax changes, taxpayers may not get the benefit of 2.5-percent tax rebate in many cases unless DCT gets convinced."

Currently, base rates of corporate tax for listed companies are 20 per cent and 22.5 per cent which taxpayers used to avail as standard rates, he adds.

If the rates change to 22.5 per cent and 25 per cent, many companies may not be able to avail 2.5-percent lower taxes by way of compliance with cashless transaction, according to the ex-official.

The condition on cashless limit is not exceeding Tk 0.5 million for a single transaction and not above Tk 3.6 million per annum.

Tax expert Humayun Kabir FCA, the former president of the Institute of Chartered Accounts Bangladesh (ICAB), thinks changes to base rate may cause higher tax incidence on 'special income' of listed companies.

Inadmissible income, refund, perquisite and other categories of income are assessed on the basis of base rate of corporate taxes, he told the FE correspondent.

However, it does not mean that corporate tax rate for the listed companies is going up by 2.5 per cent in the upcoming financial year.

In the upcoming budget, the government may also impose capital-gain taxes on individual investors for the first time if profits exceed Tk 4.0 million.

On the contrary, corporate tax rate for non-listed companies would be cut by 2.5 per cent, irrespective of complying with cashless limit.

With the move, if proposed in the budget, tax gap between listed and non-listed companies would be 5.0 per cent from the existing 7.5 per cent.

Capital-market experts, however, say this is not the right time to levy higher taxes and reduce the tax gap between listed and non-listed companies as a large number of companies remained out of the capital market.

They find the step hiking corporate taxes by 2.5 per cent for publicly-traded companies as 'disincentive' for more companies to come onto the capital market.

Also, individual investors in capital market may see a 15-percent tax on their capital gains, after a ceiling of Tk 4.0 million, for the first time in FY 2024-25.

Bangladesh Securities and Exchange Commission (BSEC) Chairman Prof Shibli Rubayat-Ul-Islam has said the NBR should not impose any new tax on capital-market investors as it would damage government effort to revive the market.

Already, he points out, the market has faced a blow of NBR's possible fiscal measures on share- market investors.

"Prime Minister Sheikh Hasina also directed encouraging more companies to come in the capital market. Such steps at this stage would not support government vision," he says.

He mentions that publicly listed companies have to incur some additional expenses to maintain compliance requirement with the regulator.

Capital-market experts, however, fear a psychological impact among the investors from such government move on taxing share-market investors.

"The government should not think about mobilizing higher revenue from capital market at this stage, but should concentrate on simplifying investment procedures," says Hafiz Muhammad Hasan Babu, chairman of the Board of Directors of Dhaka Stock Exchange (DSE).

The premier bourse (DSE) thinks that tax on listed companies should not increase anyway, with or without conditions, he says.

"Rather, the government should widen the tax gap between listed and non-listed companies to 12.5 per cent from the existing 7.5 per cent."

Mahbub Mazumder FCMA, a capital-market expert, thinks the move would not help the tax authority to mobilize higher revenue rather penalize the complaint companies maintaining transparency in financial accounts as listed ones.

"Those avoiding transparencies in financial accounts would see 2.5-percent pared-down tax rate while complaint ones see a hike," he says about the policy discrepancy.

However, a senior tax official has said the tax benefit for capital market has been continuing for a longer period but failed to encourage companies to offload shares.

They say lower tax rates have played a minor role in bating companies in the capital market.

As per DSE data, only six companies offloaded shares on the capital market last year.

The tax official says the tax gap between listed and non-listed companies would be minimized gradually as per global practice in other countries.

Currently, majority of the publicly-listed companies are enjoying 20-percent corporate tax while only six companies, having 10-percent or less-than-10-percent free float, are paying taxes at 22.50 per cent.

The six are Walton, Berger, Grameenphone, Marico, Robi, and UPGD.

Walton floated 2.0 per cent of its shares followed by Berger 5.0 per cent and Marico, Robi and UPGD (United Power Generation and Distribution) company 10 per cent.

The DSE chairman says this is not the right time to impose higher taxes on publicly-listed companies considering the current economic perspective and global context.

"Capital market needs government support now. The prime minister also instructed the government companies to offload share on the capital market," he adds.

There are many non-listed companies not coming in capital market and remained in indiscipline in financial management, he mentions.

He notes that there are multiple forms of tax related to the capital market, including source taxes.

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