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What impact will corporate tax cuts have?

  • Published at 10:40 pm June 6th, 2018
  • Last updated at 10:41 pm June 6th, 2018

Corporations can likely look forward to a slight decrease in the corporate tax rate in the upcoming fiscal year. 

But businessmen and economists have had mixed views about possible corporate tax cuts, ranging from caution to enthusiasm.

Finance Minister AMA Muhith is scheduled to place the budget for FY2018-19 before parliament at 12:30pm today. He has previously indicated that corporate tax rates would see a slight decrease this coming fiscal year.

Speaking to the press at the Secretariat on Monday, he said: “The uniform 45% tax rates on both publicly traded and non-publicly traded cigarette manufacturers, and non-publicly traded mobile network operators, will remain unchanged. 

“But all other companies – both those listed and unlisted with the stock exchanges, including banks – will see a maximum corporate tax rate of 37.5%.”

The Centre for Policy Dialogue (CPD), an independent think tank, in its budget recommendations, was cautious in its appraisal of possible corporate tax cuts: “The budget should refrain from reducing corporate tax rates on an ad hoc basis, in a hasty manner, and without a rigorous analysis.”

CPD Research Fellow Towfiqul Islam Khan elaborated further, saying: “Adjustments of corporate tax rates, if required, should be done in a staggered way over the medium term in order to absorb any revenue shock and provide investors predictability as regards investment decisions.”

Others advocated larger tax cuts, but included certain provisos. 

The president of the Dhaka Chamber of Commerce and Industry (DCCI), Abul Kasem Khan, said corporate taxes should be cut at a progressive rate on a year-on-year basis.

He proposed a five percentage-point corporate tax reduction in FY2018-19, a seven percentage-point cut in FY2019-20,  culminating in a 10 percentage-point decrease in FY2020-21, all compared to the current tax rate.

But Abul Kasem Khan’s proposal comes with an important condition.

Companies, he says, must plow their tax savings back into investments: “A company should then re-invest its tax savings into research and development, and SDG-related activities.”

Dhaka University economics professor Abu Ahmed told the Dhaka Tribune that cutting corporate taxes on publicly traded companies “could help attract large multinational companies to enlist with the stock exchanges.” 

The professor, who is also a stock market analyst, added: “The stock market is usually a great source for raising funds to help a country’s ongoing industrialisation, but this does not seem to be the case for Bangladesh.” 

“Cutting corporate taxes would help increase the supply of quality stocks on the market, making it more vibrant.”

Finally, the former chairman of the National Board of Revenue (NBR), Abdul Majid told the Dhaka Tribune that changes to tax rates were only as effective as the sincerity with which they were implemented. 

“The corporate tax in our country is high because the size of our economy is small. Whether rates are increased or decreased, it is important to work to fulfill the intentions driving changes to the tax rates,” he said. “It would be difficult for the government to compensate for lost revenue from a corporate tax cut, if rules were not applied strictly.” 

“There is a need for an impact assessment of such a decision. Cuts to tax rates could bring more investment to the country and help increase revenue, but could also end up serving the narrow interests of vested quarters.”