Reduction of tax rate, not tax holiday, is preferable
Md. Ashraf Hossain | Tuesday, 10 June 2008
Recently the Federation of the Bangladesh Chambers of Commerce of Industry (FBCCI) requested the government to extend tax holiday for promoting country's economic development. It appears from the fiscal policy that in last couple of years, the government has been following a policy to limit tax holiday facility. The number of industries eligible to enjoy tax holiday has been reduced drastically and only a limited listed industry is allowed to enjoy tax holiday as per the latest fiscal policy. Reportedly, the government constituted a committee to recommend a rational measure, evaluating the pros and cons of the facility.
In this respect as a citizen of the country this scribe would like to present his opinion to the government. It is obvious that the business community and industrialists at large have a mental make-up not to pay income tax or pay as less as possible. High rate of tax and unfriendly attitude of the government's tax officials mainly create such a mentality. Those need to be changed. Tax holiday facility is another significant factor that creates tax-evading mentality among the industrialists. It directly increases white money of the industrialists and widens the scope for reinvestment in business. It is considered as positive factor for increasing economic performance and ultimately increases employment. Tax holiday for a period of five or seven years, as the case may be, creates reluctance (among industrialists) to pay high tax after expiry of the holiday period.
In this context, the following suggestions may be considered:
1. Tax holiday would not be extended further.
2. For all new industrial ventures, reduced tax facility for a period of three, five or seven years may be allowed on the basis of type and location of industry.
3. A new industry, which will enjoy reduced tax facility, would have to pay tax at the rate of three per cent during the first year of commercial operation, four per cent for the second year of operation, five per cent for the third year of operation, six per cent for the forth year of operation, seven per cent for the fifth year of operation, eight per cent for the sixth year of operation and nine per cent for the seventh year of operation. Thereafter, the industry have to pay the usual rate of income tax.
The reduced rates of income tax will help grow the habit to pay tax and, at the same time, generate capital for reinvestment.
The prevailing corporate tax, 45 per cent for the non-listed companies and 40 per cent for the listed companies, is very high. Corporate tax rate needs to be reduced gradually to encourage tax payment. In case of cash dividend payment to the shareholders of a company, 10 per cent of tax is deducted at source. So, a 10 per cent reduction in corporate tax for the company that pays dividends to the shareholder needs to be considered.
Reduced tax rate, instead of tax holiday, for new industries would help grow a habit and culture of tax payment and generate capital for reinvestment.
The government, therefore, should not extend tax holiday further. Rather, reduced tax rates for new ventures would help foster payment culture and encourage reinvestment to generate more employments.
The writer is senior manager, RM Group of Industries, 8, Panthapath, Dhaka
In this respect as a citizen of the country this scribe would like to present his opinion to the government. It is obvious that the business community and industrialists at large have a mental make-up not to pay income tax or pay as less as possible. High rate of tax and unfriendly attitude of the government's tax officials mainly create such a mentality. Those need to be changed. Tax holiday facility is another significant factor that creates tax-evading mentality among the industrialists. It directly increases white money of the industrialists and widens the scope for reinvestment in business. It is considered as positive factor for increasing economic performance and ultimately increases employment. Tax holiday for a period of five or seven years, as the case may be, creates reluctance (among industrialists) to pay high tax after expiry of the holiday period.
In this context, the following suggestions may be considered:
1. Tax holiday would not be extended further.
2. For all new industrial ventures, reduced tax facility for a period of three, five or seven years may be allowed on the basis of type and location of industry.
3. A new industry, which will enjoy reduced tax facility, would have to pay tax at the rate of three per cent during the first year of commercial operation, four per cent for the second year of operation, five per cent for the third year of operation, six per cent for the forth year of operation, seven per cent for the fifth year of operation, eight per cent for the sixth year of operation and nine per cent for the seventh year of operation. Thereafter, the industry have to pay the usual rate of income tax.
The reduced rates of income tax will help grow the habit to pay tax and, at the same time, generate capital for reinvestment.
The prevailing corporate tax, 45 per cent for the non-listed companies and 40 per cent for the listed companies, is very high. Corporate tax rate needs to be reduced gradually to encourage tax payment. In case of cash dividend payment to the shareholders of a company, 10 per cent of tax is deducted at source. So, a 10 per cent reduction in corporate tax for the company that pays dividends to the shareholder needs to be considered.
Reduced tax rate, instead of tax holiday, for new industries would help grow a habit and culture of tax payment and generate capital for reinvestment.
The government, therefore, should not extend tax holiday further. Rather, reduced tax rates for new ventures would help foster payment culture and encourage reinvestment to generate more employments.
The writer is senior manager, RM Group of Industries, 8, Panthapath, Dhaka