• Monday, Nov 29, 2021
  • Last Update : 05:04 pm

Calls for corporate tax cuts getting louder

  • Published at 12:10 am March 14th, 2021

At present, a non-listed company has to pay 32.5 per cent corporate tax while its publicly traded counterparts have to pay 25 per cent

Like all previous budgets, talks of corporate tax cuts are on the table again ahead of the budget for fiscal 2021-22.

Although businesses say that reducing corporate tax rates would bring in more investment and create employment, the rate in Bangladesh is still higher than both the regional and global averages.

At present, a non-listed company has to pay 32.5 per cent corporate tax while its publicly traded counterparts have to pay 25 per cent in the country.

However, the global average corporate tax rate is 23.8 per cent, while that in Asia is 21.1 per cent, according to data compiled by the Dhaka Chamber of Commerce and Industry (DCCI).

Businesses in Vietnam, Indonesia and Myanmar pay, on average, 20 per cent corporate tax while it is 25.2 per cent in India, 29 per cent in Pakistan and 28 per cent in Sri Lanka, according to DCCI.

If the government were to reduce the tax rates gradually, it would not hurt revenue collection; rather, it would boost investors’ confidence, Abul Kasem Khan, managing director of AK Khan Telecom, told Dhaka Tribune.   

It is a good sign that the government brought down the corporate tax rate by 2.5 percentage pointsthis fiscal year, he said, adding that further cuts in the next budget could bring it to 25 per cent within the next two or three years.

“A flexible tax system and reasonable rate increases a country’s international competitiveness and attracts investors.” 

If the government reduces the corporate tax further, this would serve as an incentive for investors, which would also help to increase the working cash flow, Khan said.

In ensuring investment, the government can set conditions saying that a business person has to invest the money saved due to the waiver. 

This could be invested in developing human resources and upscaling training, research and development, Khan added.

And the investment attracted would be from both local and foreign sources, said DCCI President Rizwan Rahman.  

Rahman suggested a progressive tax rate for the next few fiscal years and called for reducing the corporate tax for listed and non-listed companies at a rate of 2.5 per cent, 5 per cent, and 7 per cent over the next three fiscal years.

“Higher corporate tax rates discourage new investment,” said Abdul Kader Khan, managing director of Khan Accessories and Packaging Co.

Similarly, business-friendly rates encourage more investment. If Bangladesh wants to attract foreign investment, it has to offer incentives.

He also urged the government to provide an equal tax rate for small and medium entrepreneurs so that they can remain competitive.

However, experts have also called for clarification of effective tax rate, saying that only a reduction in corporate tax cannot be a sole indicator for attracting investment.

“We should think about the impact of tax cuts on the overall economy as well as revenue generation,” said Towfiqul Islam Khan, a senior research fellow at the Centre for Policy Dialogue.

Businesses are asking for rate cuts for the non-listed companies, but they are not paying heed to the garment sector’s rate.

The country's export-oriented apparel sector pays 12 per cent corporate tax and it is 10 per cent for the garment factories thatmanufacture goods in certified green factories.     

“Corporate tax is not the only barrier to investment -- more issues need to be addressed.”

To attract investment, Bangladesh needs proper infrastructure, for which the country needs tax to meet the demands for the funds.

“We consider only the tax rate while comparing with competing countries, but there are other issues. We should think about the other waivers and special benefits offered to specific sectors.”

There is also variation in rates and different types of waivers, said Islam, urging to refix the arbitrary rates offered to different sectors.  

The other economists have called for reforms to the tax system and rationalisation of the rate, which they find very complex and unfriendly.

“Our tax system and policy are very complex. There are different rates for different sectors,” said Zahid Hussain, a former lead economist of the World Bank office in Dhaka.

Compared to other South Asian countries as well as competitors, the corporate tax rate is higher in Bangladesh. 

But there is a loophole in the system, which creates opportunities for the evaders, said Hussain.  

To remove systematic fault and stop lodging tax, the government should bring reforms in the system and rationalise the rate.

If the government reduces the tax rate on an ad-hoc basis, it would not benefit. Rather, this would negatively impact revenue generation.   

For reaping the most benefits, the tax system should be amended and be made more business-friendly; if this is done, there will be more investment, Hussain added.

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