Replacing domestic minimum tax (DMT) regime is among numerous dos the International Monetary Fund has given to the revenue board for the upcoming fiscal year, pending a loan-disbursement deal with Bangladesh.
Officials say during the recent loan-review mission, the IMF delegation placed to the National Board of Revenue (NBR) six-point proposals for incorporating into the country's budget for fiscal year 2025-26, scheduled for June 2 next.
The Fund mission concluded its review from April 6 to 17 and left without signing a proposed staff-level agreement to disburse fourth and fifth tranches of a US$ 4.7-billion loan in June, prolonging the negotiations until their board meet.
Meanwhile, a high-powered government delegation, led by Finance Adviser Dr Salehuddin Ahmed, is now off to Washington to attend the IMF-World Bank annual meeting on April 21-26.
Officials say the delegation will place request to the IMF to relax the conditions on loan disbursement, which include some hard-to-do financial reforms in the present context of domestic and global volatility.
Terming the current DMT a 'complex' one, the IMF suggests that it should not exceed actual tax liability of the taxpayers.
Talking to the FE, a senior tax official admitted that the current DMT regime is really complex for both taxmen and taxpayers.
"Field-level tax officials usually struggle to understand the provisions of DMT while taxpayers often alleged harassment and not refunding or allowing excess paid taxes to carry forward," he said.
The measure is a long-awaited demand from the business community who found the CIT going higher than 50 per cent in some cases.
"Replacement of the current domestic minimum tax with a simplified, no-exemption version that is credible against taxpayers' corporate income-tax liability is necessary," says the IMF in a document, obtained by The Financial Express.
The paper, prepared by the Asia and Pacific department of the IMF, on April 7, 2025, is titled 'Bangladesh: preparation for the combined third and fourth review of ECF/EFF and RSF programme'.
Chartered Accountant Snehasish Barua also thinks the current provision of minimum tax fundamentally goes against the tax principal as the policy-setters are concerned about inappropriate disclosure of actual transactions in the audited financials.
"Digital Verification System (DVS) set up by the NBR in partnership with ICAB is bringing paradigm shift in financial transparency. Hence, proposed provision of minimum alternative tax (MAT), which also exists in some other countries, might address this issue to some extent. However, the tax-at-source percentage must be rationalized in line with MAT so that businesses can fully reap the benefit of such amendments," he says.
Other newly proposed measures of the IMF for fiscal year 2025-26 budget include reducing VAT preferences by allowing sunset clauses to expire as planned, expanding the application of the standard 15-percent VAT rate, reducing income-tax preference through the amendment or repeal of tax-relief statutory regulatory orders, increasing excise duty on luxury goods, if the above-mentioned measures prove insufficient to meet the targets.
"DMT should be levied at a rate of 1.5 and 3.0 per cent of annual turnover/gross receipts of the business entity," it says.
However, the IMF proposes simplifying the DMT applying broadly to all businesses, including those currently exempt or on tax holidays. "DMT is payable in a given tax year when the tax liability calculated in this manner exceeds the taxpayer's income- tax liability."
It has proposed not to allow any exemption on DMT and to apply it to all businesses regardless of whether the income is taxable or exempt for corporate income- tax purpose.
In case of exceeding the DMT liability against actual tax liability, it should be allowed for carrying forward for 10 years to set off the standard liability when it is in excess of the DMT in the future.
"DMT credit balances should accrue interest at the government bond rate (non-cash), preserving their real value.
The IMF document mentions the major missing condition in NBR. The floor on revenue, set by the IMF, was Tk 2.15 trillion until end-December 2024. The NBR trailed far behind the target in that period.
Other floors, including Net International Reserves, primary balance, accumulation of external-payment arrears under its quantitative- performance criteria, have been met.
On indicative targets, apart from revenue mobilization, all other conditions, including ceiling on reserve money, floor on priority social spending and capital investment, were met successfully.
Performance of structural benchmarks has three missed conditions--framing mid- and long-term revenue strategy, central bank's delay in simplifying organogram-related functions by the end of December 2024, and also the BB's failure to update a regulation to align definition of non-performing exposures and forbearance in line with Basel BCBS guidelines by December 2024.
On this benchmark, only one conditions met is the formulation of sector strategy papers/ sector action plans and multi-year public investment programme for a total of five sectors by the end of December 2024.
The second review mission had set tax-revenue- collection target at Tk 3.9 trillion or 7.9 per cent of GDP by the end of June 2024 while actual collection was Tk 3.69 trillion or 7.1 per cent of the GDP, as per third review mission's findings in December 2024.
By the end of June 2025, the target for the NBR is Tk 4.55 trillion or 7.6 per cent of the GDP while it is Tk 5.80 trillion or 8.7 per cent until June 2026.
In April, the review mission recalculated the tax-revenue target from actual base on end of June 2023 where actual tax -revenue collection was Tk 3.27 trillion or 7.3 per cent tax of GDP and Tk 3.69 trillion or 7.4 per cent of tax to GDP.
On the basis of fresh calculation, the NBR will have to collect Tk 4.55 trillion within this fiscal year and Tk 5.77 trillion by next FY, achieving tax-to-GDP ratio of 7.9 per cent and 9.0 per cent respectively.
On programme conditionality for the NBR, the IMF found structural reforms, including finalizing mid-and long-term revenue strategies as missed condition.
The lender has a condition on approving project proposals for digital transformation of income -tax administration by the end of June 2025 and adopting a formal code of ethics and professional conduct for the NBR by this September.
A set of new conditions came in the third review mission that include identifying current disparate taxpayers with multiple TINs as a first step to unify taxpayers' IDs, by end of December 2025, mandating that all tax payments and returns for a tax deducted at source are filed and paid electronically by March 2026.
doulotakter11@gmail.com
© 2025 - All Rights with The Financial Express
