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Tax waivers to lure businesses into special zones should continue

Listed cos says to revenue authority in a statement


MOHAMMAD MUFAZZAL | Thursday, 13 June 2024



Berger Paints purchased land in Bangabandhu Sheikh Mujib Shilpa Nagar as part of an expansion plan drawn up after it felt encouraged by tax exemptions promised on profits from operations in the special economic zone.
Not only Berger but also all companies have been assured of tax advantages by the Bangladesh Economic Zone Authority (BEZA), designed for business operations in all economic zones and hi-tech parks.
Berger has been developing land and building its third factory in the Shilpa Nagar since 2018 and is expecting to begin production there in the middle of 2026.
It was caught off guard when it learnt that the proposed FY25 budget suggests discontinuing tax benefits to the firms that have factories in places other than the special zones.
An SRO (statutory regulatory order) issued by the revenue board in 2015 announced 100 per cent tax exemptions on earnings of production units in the special zones for 10 years from the commencement of the operation.
While the FY25 budget removes companies like Berger from the list of beneficiaries, it also reduces the tenure of entitlement to zero tax from 10 years to 3 years for businesses that operate only in the special zones.
"It will discourage local and foreign investments," said Ms Rupali Chowdhury, president of the Bangladesh Association of Publicly Listed Companies (BAPLC) and managing director of Berger.
Entrepreneurs have also started pondering whether they should rely on assurances given by the BEZA, she added.
This is the backdrop to the Bangladesh Association of Publicly Listed Companies (BAPLC) urging the National Board of Revenue (NBR) on Wednesday to keep the existing tax provisions unchanged.
It also pleaded with the tax authority to reconsider other proposed measures that would hinder the growth of listed companies.
As per the existing provision, listed companies are required to pay tax at a rate of 3-7 per cent on contract works, differing based on the amounts of gross bills of the tasks done.
The proposed budget fixes the tax rate at 7 per cent. This tax will add to the minimum 22.5 per cent corporate tax paid by public companies on their profits.
The association said many organisations already pay much more than the corporate tax imposed on them for the additional tax tied to contract works. The tax burden will be heavier for the flat tax rate of 7 per cent.
For the companies engaged in construction and engineering works, the effective tax would exceed 70 per cent of their income on average.
"That would render a huge impact on cash flow and profitability," said the BAPLC in a written statement submitted to the NBR.
The association also pointed out the discriminatory tax policies for provident funds of government employees and the private sector.
In FY23, the government imposed a 27.5 per cent tax on the provident funds maintained by private sector employees, while funds managed by government employees are beyond the purview of tax.
Following criticisms, the NBR proposes curtailing the tax rate to 15 per cent on the provident funds of the private sector for FY25.
However, the funds of government employees will keep benefiting from zero tax policy.
The BAPLC said privately-run provident funds should be equally treated in the taxation system.
"By addressing the disparities, the government can promote a more balanced and just approach to retirement savings and income taxation," said the BAPLC.
The association of listed companies also requested the revenue authority not to impose capital gain tax on individual investors.
This measure will discourage investors from making further investments especially during the bear run of the stock market, it said.

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