SME-friendly tax policies advocated

Conducive tax-policies are needed for development of small and medium enterprises (SMEs) in South Asian countries including Bangladesh, speakers say at a regional dialogue.

They have suggested that the government frame tax policies keeping in view the present socio-economic context of the country.

The speakers urge the government to revise the existing high rate of corporate tax, consider reduction of VAT rates in the new law and keep provisions for multiple rates of VAT etc.

They also urge the government to facilitate growth of the SME sector with rational tax-policies to help the sector survive and compete in the international market.

The economists, experts, businessmen and former policymakers made the recommendations at a regional dialogue on 'SME development in South Asia: How conducive are the tax policies?' arranged by the Centre for Policy Dialogue (CPD) in collaboration with the Governance Institutes Network International (GINI) at the city's BRAC Centre on Thursday.

M Syeduzzaman, former finance minister and member of CPD board of trustees, chaired the session while CPD Executive Director Dr Mustafizur Rahman,  Towfiqul islam Khan, CPD research fellow, Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) president Kazi Akram Uddin Ahmed, former adviser to caretaker government Dr Mirza Azizul Islam, Chittagong Stock Exchange (CSE)  chairman Dr Abdul Mazid and Dhaka Stock Exchange (DSE) Chief Executive Officer (CEO) Dr Swapan Kumar Bala, among others, spoke at the dialogue.

Two distinguished discussants at the dialogue were Dr Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (PRI) and Syed Nasim Manzur, president of the Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI).

Sabieh Haider, research manager of GINI and coordinator of the "regional meta-analysis report: South Asia' presented a brief on the country-specific recommendations on tax policies and enterprise development in Bangladesh, India, Pakistan, Nepal and Sri Lanka.

Dr Ahsan H Mansur said the small enterprises need special attention but VAT is an account-based system that is usually imposed on enterprises' financial characteristics.

He said the new VAT law has two thresholds-one for full exemption and another one on the basis of turnover of companies.

"There is enormous untapped potentiality in VAT collection that remained unrealised. Major overhauling is needed to facilitate VAT payers and end their hassle," he said.

Nasim Manzur said the tax-law should be framed making it user-friendly, as many of the detrimental issues including minimum tax on companies, tax on distributors are affecting the industry.

He suggested incentivising the taxpayers on early submission of tax returns.

Mirza Aziz said fiscal incentives play a minor role in investment as other issues including political stability, access to land, transparency etc are more important.

"Present tax regime is not a serious impediment to investment and growth," he said.

He suggested that the government adopt a common and uniform definition of SME that all the registering authorities would follow and initiate coordinated action to detect non-compliance.

Dr Aziz also laid emphasis on linking up SMEs with large industries to support the small entrepreneurs with technology and sale of goods.

FBCCI adviser Manzur Ahmed said the SMEs need support to compete with imported goods.

He said the many countries have multiple rates of VAT that could be adopted under the new VAT law.

FBCCI income tax subcommittee convener Humayun Kabir said there must be a study on effective tax rate as it would be above 60 per cent for the listed companies.

On property tax, he said capital formation would be discouraged and there might be flight of capital with imposition of this tax. "It must be clarified whether it would be tax on property, land or wealth," he said.

Dr Abdul Mazid said link-up between small and large taxpayers is needed as tax is being imposed on existing large taxpayers.

FBCCI president Kazi Akram said the SME sector cannot approach the government due to their limited access, although their employment generation is high.

To conclude the dialogue, M Syeduzzaman said light engineering industries are accounting for 35 per cent of the total industrial contribution to the GDP in Bangladesh.

About 40,000 industries across the country employ 6.5 million people, have an annual turnover of Tk 150 billion (15,000 crore) and growing 15 to 20 per cent a year, he said.

 "This indicates how an efficient and rational tax structure for the SMEs can generate a significant amount of revenue," he said.

He suggested export benefits, training facility, separate industrial parks and subsidised power for the SME sector.

He said efforts should be made to identify the best practices in the context of South Asian countries for the benefits of other countries.

At the programme, the private think-tank unveiled findings of a study conducted on Bangladesh tax policy and enterprise development.

The study has been conducted under three themes-tax exemptions and concessions, Value Added Tax (VAT) and property tax.

About 262 enterprises were surveyed in Bogra, Dhaka, Chittagong and Narsingdi. The study says some 96 per cent enterprises were either direct or indirect taxpayers.

While presenting the study findings, Towfiqul Islam Khan, research fellow of CPD, said the enterprises were paying some sort of tax.

The study found the overall perception and experience as regards tax rather unsatisfactory.

"Some 80 per cent either strongly or moderately agreed that structure of tax was not favourable for businesses as there are numerous types of taxes and procedural complexities," he said.

High cost of compliance and lack of willingness of the firms are found as major impediments to the general tax behaviour, the findings say.

The study also reveals about 78 per cent firms do not enjoy significant benefits due to biasness in tax exemption and concessions which impact on their performance.

The survey report has recommended simplifying the taxation system for SMEs, access to easy loan, low interest credit, access to land and tax-benefits in the form of tax holiday, tax concessions and exemption.

When it comes to VAT compliance, the survey found many of the enterprises had no clear idea about the new VAT law, to be implemented from July 1, 2016.

"The forthcoming new VAT regime needs to recognise SMEs with an explicit definition in the VAT law. There should be SME-related special provisions in a clear and well-articulated manner," the CPD said.

In the event of property tax, the study found the enterprises recommended that the tax authority find out location-specific transaction value of various real-estate properties, enhance administrative capacity and streamline record-keeping.

"Property tax compliance cost is not burdensome, unless the possibility is there of double taxation from dual administration," it says.    doulot_akter@yahoo.com