The 2.5 percentage point reduction in the corporate tax rate will encourage businesses in Bangladesh to move away from cash transactions, said Naser Ezaz Bijoy, president of the Foreign Investors Chamber of Commerce and Industry ( FICCI).
The government has proposed a reduction in the corporate tax rate of 2.5 percentage points for listed and unlisted companies.
Businesses will need to do most of their transactions through banks and mobile financial services to benefit. They also cannot spend and invest up to Tk 12 lakh in cash.
The decision of the National Board of Revenue (NBR) aims to encourage formal transactions, to accelerate the process of dematerialization of the economy and to generate more income.
Naser described the initiative as very positive and constructive.
“It will discourage cash transactions and we at FICCI have recommended it,” he said in a telephone interview on the tax and budget measures proposed by the finance minister for the next financial year.
FICCI members contribute about 90% of foreign direct investment in Bangladesh and have generated more than 50 million jobs, directly and indirectly, according to the foreign investors’ umbrella body.
FICCI believes companies will make more of an effort to exit cash transactions if the differentiation in tax benefits is higher.
“The more incentives you provide, the greater the tendency to take advantage of them,” Naser said.
He called for raising the cap on cash transactions as a first step.
“The limit should be reduced gradually to bring it down to Tk 12 lakh. Otherwise, the target will remain unattainable,” he said, adding that the banking system and mobile financial service providers are capable of handling such transactions. .
FICCI members contribute about 90% of foreign direct investment in Bangladesh and have generated more than 50 lakh of jobs, directly and indirectly, according to the apex body of foreign investors.
During the conversation, Naser also praised some initiatives by the National Revenue Board (NBR) and added that there have been attempts to make budget and tax measures business-friendly.
The uniform corporate tax rate of 10% for all export-oriented green factories and 12% for conventional factories, such as that in the garment industry, is hailed by the famous banker as a step towards the equal treatment of all exporters.
“This will create a level playing field for all exporters. In the future, we expect further initiatives to diversify exports,” he said.
Furthermore, the scope extended to companies with a single production unit to obtain registration for value added tax and the reduction of tax deducted at source for the supply of raw materials are good strokes.
According to FICCI, the effective tax rate is the primary consideration for investors, not the nominal tax rate.
“If the effective tax rate decreases along with the reduction, we can say that it is a good decision. Now it is time to see the execution,” said Naser, also managing director of Standard Chartered Bangladesh.
“For us, it is important that companies benefit from the corporate tax reduction.”
However, he says, businesses will not benefit from the reduction if the expenses are denied by taxpayers.
Indeed, if the expenses are disallowed, the amount is treated as profit and therefore taxed.
In this regard, Naser suggested that the tax administration reduce the discretionary powers of tax officials.
He cited the NBR’s plan to ban companies’ contribution to the Workers’ Profit Sharing Fund, saying the ban on such spending would affect compliant companies.
Naser opposed the government’s bid to offer an unchallenged amnesty to legalize offshore properties and funds.
“FICCI does not agree with the proposal from an ethical perspective. We also believe that it is detrimental to compliant taxpayers and will encourage tax evaders to take advantage of the lower tax rate and withdraw the money from the countries over the next 12 months. take advantage of the ease.”
“This will put additional pressure on the forex market.”
During the presentation of the budget on June 9, the Minister of Finance tabled the proposal to give taxpayers the option of disclosing their assets abroad without facing any questions about the payment of 7% to 15% of tax, depending on whether the asset is moveable or not and whether the asset would be repatriated to Bangladesh.
Speaking about the overall fiscal measures for the next fiscal year, Naser said, “Despite the tough times, the government has really tried to make the budget business-friendly.”
There are areas that need to be addressed, according to the head of FICCI.
“The food security allocation should have been increased this year.”
At the same time, he said, the decision on big and mega projects should be taken with caution as they have negative implications.
“If projects are delayed, there will be cost overruns.”
The banker urged the government not to delay the implementation of projects related to job creation and connectivity as they will affect industries that have been set up to support the schemes.
“You will have to think hard to understand the implications of the projects. And the cost should be reduced where possible as we need the fiscal space to meet the challenges in this current difficult time.”