A reduction in corporate income tax is unlikely to help attract private investment aimed at boosting the economy, economists said.
It would have a positive impact only when a proper atmosphere would be created to increase the tax net, they told the Dhaka Tribune yesterday.
The government has dropped a broader hint that it would reduce the rate to stimulate investment in the country as a strategy to boost economy.
The indication emerged after the businessmen proposing for the exemption to recover from the setback they suffered due to political turmoil before the January 5 national election.
The economists considered the tax cut would surely affect the revenue collection for the coming fiscal year.
The rate in Bangladesh is now ranges from 27.5% to 45%. The finance minister and the chairman of the National Board of Revenue have already indicated the rate would be lowered in the budget for fiscal 2014-15, following the practice of other countries.
With the reduction of the tax rate, corporate business would pay more taxes and it will work towards reducing the tax evasion, the NBR chairman earlier claimed explaining the benefits of tax cut.
Former finance adviser to the caretaker government Dr Mirza Azizul Islam, however, said the corporate tax rate in the country is not that much higher as compared to other countries.
What the business community claimed was just a justification to demand lowering the rate, said the eminent economist. “If lowering of the rate does not help grow investments, it will only benefit the business, not the country.”
He said: “The business has been claiming that investment will be increased through lowering the tax rate, but the reality is the investment will not be increased until the basic pre-conditions for investment including connections of gas and electricity, sufficient land for industries and good communication systems are met.”
According to a KPMG conducted “Corporate and Indirect Tax Rate Survey 2014,” the corporate tax rate in some South Asian countries are 33.99% in India, 20% in Afghanistan, 34% in Pakistan, and 28% in Sri Lanka.
Different chambers and associations have long been urging the government to reduce the corporate tax rate for both the publicly listed and non-listed companies.
The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) demanded reducing the corporate tax to 40% from existing 42.5%, for publicly traded companies to 35% from 37.5%, for non-publicly traded companies (manufacturing) 32.5% and for non-manufacturing and trading companies to 35%.
For the publicly traded mobile companies, they demanded it should be 40% and 42.5% for listed and non-listed companies respectively.
Centre for Policy Dialogue Executive Director Prof Mustafizur Rahman emphasised on bringing the non-listed companies under the listed company’s list first, rather than lowering the tax rate to support increasing the revenue collection.
“There is a huge possibility that lowering the corporate tax rate will have negative impact on the revenue collection as the revenue target set for the FY14-15 is already challenging to achieve,” he pointed out.
Former NBR Chairman Muhammad Abdul Mazid said theoretically the lower tax rate helps increase the number of taxpayers, but the question is whether the theory is applicable for Bangladesh or not.
“Before the tax cut, the government should find out alternative measures to make up the losses by ensuring an atmosphere where transparency and increase of tax net will be ensured,” he said.
He also noted that before lowering the tax rate, NBR has to ensure that the revenue losses to be incurred has to be compensated through taking effective measures like plugging of loopholes in the tax system, and expansion of the income tax base.