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Budget FY19: Corporate taxes reduced for banks and financial institutions

  • Published at 02:00 pm June 7th, 2018
  • Last updated at 02:16 am June 8th, 2018

Under the present corporate tax policy, publicly listed banks, insurance, and non-banking financial institutions pay 40% corporate tax, while non-listed companies pay 42.5%

Finance Minister AMA Muhith has proposed reducing the corporate tax rates for banks and financial institutions by 2.5% in the national budget for the 2018-19 fiscal year. 

Under the present corporate tax policy, publicly listed banks, insurance and non-banking financial institutions pay 40% corporate tax, while non-listed companies pay 42.5%.

Muhith placed the budget proposal for the 2018-19 fiscal year before parliament on Thursday.

In his budget speech, the finance minister said: “It is often argued that the corporate tax rate in Bangladesh is considerably high. This is not correct.

“Corporate tax for publicly traded companies in Bangladesh is 25%, which is lower than many countries in South Asia and very compatible with the global average rate [24.29%]. But tax rates for banks and financial institutions are a bit higher than other corporate sectors.

“I propose to reduce the tax rate for banks and financial institutions by 2.5%. We will lose a certain amount of tax revenue from such rationalization of corporate tax rate, however, this will give a positive signal to our investors.”

Muhith also proposed a freeze on corporate tax rates for other companies.

“With this proposed rate, the highest corporate tax rate will be around 40%, and the next highest rate will be 37.5%, except for the tobacco manufacturers and non-listed mobile phone operators,” Muhith said. 

Stock analysts and stakeholders welcomed the proposal, saying policy incentives would encourage more multinational companies (MNCs) to be listed in the country’s stock markets.

“Corporate taxes in the country’s banking sector are much higher [than many Asian countries],” said Anis A Khan, the former chairman of the Association of Bankers Bangladesh (ABB) and managing director of the Mutual Trust Bank Ltd.

A comparison between the existing and proposed corporate tax rates | Dhaka Tribune

“A reduction in the corporate tax rates will help increase the banks’ profits, as well as their capitals. Entrepreneurs and shareholders will benefit from this step (and) the overall business sector will expand as well.”

KAM Majedur Rahman, managing director of Dhaka Stock Exchange (DSE), said stakeholders have been urging the government to reduce the corporate tax rates for publicly listed companies, in a bid to attract multinational and large corporate companies into enlisting in Bangladesh’s stock exchanges.

“Supply of quality shares plays an important role in providing a much needed lift to the ailing stock market, and attracting new investment ito the capital market,” he told the Dhaka Tribune. 

Abul Kasem Khan, president of Dhaka Chamber of Commerce and Industry (DCCI), said the corporate tax rates should be reduced further so a larger number of local and international companies are encouraged to invest in Bangladesh. 

Stakeholders also sought an increase in the difference between the corporate tax rates of listed and non-listed companies – raising it to 20 percentage points from the existing 10 percentage points – to attract more good companies to get listed in the stock market. 

The rate of corporate tax in Bangladesh is higher than the Asian average of 21% and the global average of 24%, according to KPMG, a global network of professional firms providing audit, tax and advisory services.

Bangladesh’s tax rates for companies are also higher than that of Vietnam, Thailand, Malaysia, China, Indonesia, Sri Lanka and Pakistan. Vietnam and Thailand charge 20% tax for companies, while the rate is 24% in Malaysia and 25% in Indonesia.

India’s basic corporate tax rate stands at 30%, but the effective rate goes up to 35% for domestic companies after adding surcharge and education fees.