As all set, the next fiscal year’s budget announcement scheduled for tomorrow is expected to include a number of incentive packages to stimulate investments.
With many challenges ahead, Finance Minister AMA Muhith will place the proposed budget for FY2014-15 in the parliament.
National Board of Revenue (NBR) has set an ambitious target of collecting Tk1,49,720 crore revenue in the next financial year beginning from July.
Extension of legalising black money facility, enlargement of tax-free income slabs, continuation of tax holiday offers, tax incentives for factory relocation outside the capital and lowering of turnover tax rate are likely to be some of the features of the upcoming budget, official sources said.
Incentives for factory relocation out of Dhaka
The government is expected to provide tax rebates for the industries to be shifted from the capital. The new industries, which are not eligible for tax holiday, would be given 20% tax rebate for setting up the plants outside Dhaka while the industries, already established in Dhaka, would enjoy 10% tax rebate for relocation.
The government is taking the move as the capital Dhaka and the adjoining areas have become almost unlivable due to the factories established in the areas without any proper plan.
“The factories need to be relocated to ensure a proper working atmosphere as it has been a core concern for the foreign buyers and brands after the Rana Plaza and Tazreen Tragedy,” said Exporters Association of Bangladesh President Abdus Salam Murshedy.
He suggested setting up factories in the rural areas. “But it depends on three factors. If the government can give tax holiday benefits, ensure utility services and refinance small entrepreneurs providing soft loans with small interests, the owners will surely be relocated.”
According to the Income Tax Ordinance 1984, there are 17 sectors each in industrial undertakings and physical infrastructures that are eligible for getting tax holiday facility.
Corporate tax cut only for non-listed companies
The rate of corporate income tax would only be reduced for the non-listed companies, and the rest would remain unchanged in the upcoming fiscal year.
The finance minister is expected to propose reduction of tax rate for the non-listed companies from the existing 37.5% to 35% and keep the rates for other companies unchanged.
Former FBCCI President Mir Nasir Hossain said the gap between the tax rate for listed and non-listed companies should be minimised.
“Cost of doing business is very high in Bangladesh. For the high corporate tax rate, the local businesses are facing uneven competition in the international market. The tax gap between the two, which is now 10%, should be reduced at least to 5%,” he added.
Green tax may be imposed for curbing environment pollution
The government is likely to impose green tax at 1%, as surcharge, on prices of products produced by companies who mostly pollute environment in different ways while the environment-friendly industries are likely to receive incentive packages.
EAB President Murshedy said preventing industries from polluting environment cannot be made with imposing penalty, rather it needs encouragements such as incentive packages.
“Factories have concentrated to certain places, which should be changed. Factories have to be established in an environment-friendly manner,” he said.
“Not penalty, motivation is needed, which might include providing soft loans with 5% interest rate for setting up effluent treatment plants at the factories,” said Murshedy.
Turnover tax
The government is expected to reduce the minimum tax on any company’s gross receipts from existing 0.50% to 0.25%. Currently, any company having gross receipts of more than Tk50 lakh, irrespective of its profits or loss, has to pay minimum tax at the rate of 0.50%.
Former FBCCI President Mir Nasir Hossain said the tax needs withdrawal as it goes against the basic principle of income tax and creates double taxation.
“We are paying taxes twice on our incomes whereas the income should be implied only to the income once. Though it should be withdrawn, however, a reduction on the rate can also support the businesses,” he said.
Tax holiday to be continued till 2019
To encourage and support new entrepreneurs, tax holiday scheme, which was scheduled to end at June 2015, is expected to be extended to June 2019 as an incentive package to improve revenue collection.
As the NBR finds the limited extension of tax holiday does not attract businesses, the government might extend the time-frame for supporting businesses for a couple of years to ensure an effective investment atmosphere.
Ceiling for CSR spending to witness a rise
The government is going to propose raising the tax rebate from 10% to 20% for encouraging corporate companies to make investments in natural disaster funds, and to organisations related with health and education sectors.
The tax ceiling for CSR expenditure would also be raised from Tk8 crore to Tk12 crore annually.
The areas under CSR spending are natural disaster victims, old homes, schools for floating children, residence of slum dwellers, specialised hospitals for free treatment of poor etc.
Tax rebate on individual investment to be reduced
The government is likely to propose reducing tax rebate on investment in some specific sectors by individuals to 10% from 15%, apparently to enhance revenue income.
At present, the rebate is entitled to an amount of Tk1.5 crore or 30% of an individual’s income – whichever is lower. The government had raised the rebate to 15% in the last budget while raising the allowable limit from Tk1 crore to boost investment and economic growth.