SMEs, cottage industries facing snags to avail tax benefit

FE Report The country's small and medium enterprises (SMEs) and cottage industries are facing difficulties in availing the existing tax benefit facilities for them, including reduced tax on annual turnover and tax exemption, due to some provisions in the Value Added tax (VAT) law. The SMEs think the volume and operating costs of business, as mentioned in the law to avail the facility, is much lower than their expectation. Small businesses are entitled to enjoy 3.0 per cent VAT instead of 15 per cent, if their annual business turnover is below Tk 7.0 million. Cottage industries are also exempted from payment of VAT, if their annual production does not exceed Tk 4.0 million and their units are equipped with machinery below Tk 2.5 million. In a finding the SME Foundation has found that the tax benefit facilities for the SMEs remain unutilised, as majority of the businesses are not entitled to enjoy the facilities. Shahbuddin Ahmed, former member of the National Board of Revenue (NBR), presented a keynote paper with these findings at a seminar in the SME Foundation office in the city Wednesday. The seminar was presided over by SME Foundation acting managing director Mujibur Rahman. NBR chairman Ghulam Hussain, Dhaka Chamber of Commerce and Industry (DCCI) president Md Sabur Khan, Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) directors Abdur Razzak and Shahedul Islam Helal, and SME sector representatives also attended the programme. The keynote speaker said the existing turnover ceiling of Tk 7.0 million for the SMEs and Tk 4.0 million for the cottage industries is insufficient for them. "If we count 300 working days in a year, then a SME has to produce products worth Tk 23,333 daily and a cottage industry Tk 13,333 daily to enjoy the tax facility, which is insufficient for survival of an industry," he said. The businesses also think the Tk 2.5 million ceiling for machinery a cottage industry to enjoy tax exemption is also inadequate. The NBR chairman said the SME sector should get due priority to grow, but overall tax compliance of the companies is still poor in Bangladesh. "I have collected information of some export-oriented companies that are showing loss for the last five years. But I have found them profitable after scrutinsing other matters, including bank transactions," he said. He also said the NBR has collected information of the persons who have BMW and Mercedes cars, as around 200 luxury cars under the carnet facility entered the country with a condition of re-export. But those cars disappeared. "I am trying to collect information of those cars," he added. He also questioned the role of the SME Foundation in developing SMEs, and suggested the organisation to impart trainings and awareness programmes to the enterprises. Abdur Razzak said the registration of the SMEs for availing the tax benefit on turnover should be monitored by a team to reduce scopes of corruption in the process. "Tax on the SMEs that can not claim rebate on purchase of raw materials should be lower than that on the industries that can claim rebate," he added. Shahedul Islam Helal said the main problem of the SMEs is claiming rebate for raw materials, as they purchase those from grass-roots level. The DCCI president said large companies are availing the facilities of turnover tax or cottage industries that meant for SMEs. "Large industries launch products by opening small units that are entitled to enjoy the turnover tax benefit, thus depriving the SMEs, both from loan and tax exemption," he said. "The government should offer tax benefit to the new industries for a specific period of time, increase the ceiling, and amend the definition of cottage industry," he added. The SME Foundation also urged the NBR to amend the definition of cottage industry by terming it as small industry. It also recommended re-fixation of the value of equipments and turnover of the industries, which are set to get the benefit. It also urged the NBR to keep a provision to take rebate of the turnover tax. "There is no available statistics in the NBR on how many industries are paying 3.0 per cent turnover tax instead of 15 per cent. Recently, the board has taken an initiative to collect the information," Ahmed said in the paper. "The amount of turnover, which is insignificant compared to the size of the SMEs, may be increased by 14-15 per cent in the current fiscal," he added.