Tax Deducted at Source (TDS) turns a nagging burden for most businesses as it drives up the cost of doing business and further fuels inflation, a latest research reveals.
The source-tax-impact study by the Business Initiative Leading Development (BUILD) shows that the National Board of Revenue (NBR) collects TDS under 111 sub-heads across various industries and businesses.
Of these, the tax under 40 sub-heads is nonrefundable. Among the remaining 71 refundable sub-heads, businesses have been able to reclaim only 0.29 per cent of the deducted amounts.
As a result, 99.71 per cent of TDS effectively turns into a form of minimum tax, the study report says.
The findings were presented at a 'dialogue on policy reform requirements for non-adjustable TDS' at the DCCI auditorium in the capital, Dhaka, on Wednesday.
The event, organised by the BUILD, was moderated by Dhaka Chamber of Commerce and Industry (DCCI) president Taskeen Ahmed.
Talking to The Financial Express, research leader Md Nooruzzaman said TDS stands as a major challenge for most businesses.
"We found the findings after analysis on the fiscal policy--especially on TDS," he said.
"It has pushed up product costs, which in turn fuels further inflation," explains Nooruzzaman, also Senior Research Associate at the BUILD.
In addition to TDS, some industries are also subject to separate minimum tax requirements. "When you combine TDS with minimum tax, the total tax incidence increases threefold."
Citing examples, he said the total tax incidence in the cement sector stands at around 75 per cent, while in the steel industry it is nearly 89 percent.
The DCCI president, Taskeen Ahmed, said large businesses are not able to make any profit despite a huge turnover annually due to turnover tax, which is not refundable or adjustable.
Further explaining he said large companies have huge volumes of turnover but their profit margins are nearly 1 to 1.5 per cent. "They are in big trouble due to TDS."
Some of them are paying over Tk 100 million as tax to the government exchequer, he added.
Echoing Taskeen views, BUILD chairperson Abul Kasem Khan said, "One of my companies' TTI (total tax incidence) stands over 50 per cent over last couple of years."
It makes difficult the company survival. "If it continues for next five years, the company may have to shut down."
Snehasish Barua, partner at Snehasish Mahmud and Co, said until minimum tax- policy changes, businesses would not be able to feel relief.
"The TDS rate is high, which should be reduced," he said, adding that refund mechanism is not good for taxpayers.
He also thinks minimum tax on gross receipt is not justified.
Addressing the event as the chief guest, National Board of Revenue (NBR) Chairman Md Abdur Rahman Khan said tax deducted at source or TDS is globally recognized as a "painless treatment" and an admirable system for tax collection.
However, he acknowledges that in Bangladesh, the challenge lies in proper adjustments, as some taxpayers are not paying taxes correctly.
"We have a refund policy, but there are certain challenges in implementing it," he told the meet. "We are working to introduce an automated VAT refund system, which we hope to launch by next month."
On income-tax refunds, he points out that there have been instances where taxpayers claimed refunds higher than the amount of tax they had paid, creating complications for the system.
"There is still a tendency to avoid taxes despite the reduction in individual tax rates," he said. "Many people report higher income from exempted sources to avoid paying taxes."
The NBR chairman admits that the revenue authority has repeatedly failed to meet its tax-collection targets.
"Despite widespread tax avoidance, there are also some compliant taxpayers," he notes. "If we can set a standard for them and introduce incentives, it will encourage more people to comply voluntarily."
Khan emphasizes the need to expand the tax net to reduce harassment for large companies.
"Until the tax base is widened, hassles for big businesses will persist," he said. "We plan to conduct a large-scale nationwide survey, and our goal is to fully automate the entire system."
About instances of excessive tax demands on smaller businesses, he cited an example where a company with a paid-up capital of Tk 10 million was asked to pay Tk 70 million in taxes.
"Such tax demands are illogical and impossible to comply with," he said, adding that the NBR has recently issued directives to address this matter.
Khan also highlights problems facing oceangoing ship importers, noting that VAT was imposed at an unsustainable rate.
"As a result, four ships were not imported," he mentions. "Considering this, we are going to issue a circular to withdraw the VAT in this regard."
Speaking as a special guest, Social Welfare Ministry Secretary Dr. Mohammad Abu Yusuf said the minimum-tax structure should be reformed to better reflect actual business performance.
"Minimum tax should be linked to profit margins rather than turnover," he said. "Otherwise, many businesses will not be able to continue operations."
BUILD CEO Ferdaus Ara Begum said businesses are facing the pain of TDS despite it is called painless.
BUILD research director Dr Wasel Bin Shadat presented the keynote paper at the event.
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