'Non-listed companies were taxed 35%, but later brought down to 32.5% in the last budget. This is a step in the right direction, but more needs to be done'
Managing Director of Apex Footwear, Syed Nasim Manzur thinks the last reduction in tax rates in last year’s budget is a step in the right direction but without further cuts, it is becoming increasingly difficult for businesses to survive in Bangladesh.
"Our tax rates range from 20-35%. Non-listed companies were taxed 35%, but later brought down to 32.5% in the last budget. This is a step in the right direction, but more needs to be done,” said Syed Nasim Manzur, managing director of Apex Footwear Ltd.
Speaking to Dhaka Tribune Editor Zafar Sobhan in the first episode of the new season of the popular talk show "Straight Talk with Zafar Sobhan", he said that the Asian average for taxes is 21%, with Thailand and Vietnam having 20%.
The corporate tax for non-listed companies was fixed at 32.5% from the existing tax rate of 35%, after last year’s national budget.
"What are we doing at 32.5%? You need to bring that down, with the help of a roadmap. But there is no predictability on taxes.
The country's export-oriented apparel sector, as a key driver of Bangladesh's export, is the only sector taxed at 12%, which becomes 10% if you have a green factory. But if there is a leather footwear manufacturing factory, also export-oriented, with a green factory, they are taxed from 12-32.5%."
The Apex Footwear MD has been the talk of town after his remarks during a recent webinar went viral, where he expressed his frustration with the tax system of Bangladesh, which became a pertinent and trending topic of discussion for the last few days.
"The local tax system is not business-friendly. For this reason, the business should be stopped. Those of us who do business in Bangladesh, we want to leave it from tomorrow," he had said during the webinar.
"Profit or loss, whatever it is, one must pay the tax," Manzur came down hard on the tax system.
"Those who do not pay taxes will be fine. On the other hand, we will die. We no longer want to be in this kind of business," he said.
Urging the authorities concerned to fix the tax system, he said new entrepreneurs will not come and existing businesses will not flourish unless the system is reformed.
"Looking back, I did mean what I said though. The context was very important, as what are we doing in Bangladesh to bring more foreign direct investment (FDI), particularly in the context of LDC graduation.
I thought it was the right platform to talk about why we (local entrepreneurs) have not done enough to make Bangladesh attractive for foreign investment."
"If I had known about the outcome (of my remarks), maybe I would have been a little bit more tempered with my words," said Manzur, also the former president of the Metropolitan Chamber of Commerce and Industry (MCCI.)
The Apex Footwear MD also recommended at least one Bangladeshi businessperson to receive national recognition, in the form of Ekushey Padak, as recognition and respect for what they have done for the country.
About the tax regime in the country, he said that in Bangladesh the business community gets a lot of criticism, some valid and others unfounded.
The majority of the businesses in the country want to pay taxes, but the reward and the incentive system for paying taxes are poor, he also said.
"As Rizwan Rahman (DCCI president) pointed out in an example during the webinar, if I do not pay taxes this year, I save 32%. Next year I show that as undeclared tax, and I can pay 10% instead. As long as I have no moral qualms and I can sleep very well at night, I have saved 22%. That is a lot of money.
This is a potential moral hazard - you are encouraging people not to pay their taxes. That is a disincentive. I only said in jest that we pay taxes for those of us who do, and we also pay for those who do not," he added.
"Most MCCI members are part of the large taxpayers' unit (LTU). We have no problem, rather we are proud of it, as we can then demand services and a certain quality of life from the government. But it is incredible when in every quarter we get a call from the tax unit, who say they are unable to meet their revenue collection targets. That cannot be a sustainable way of running your tax regime," Manzur observed.
In December 2020, the NBR collected Tk213.77 billion revenue against its target of Tk282.65 billion.
Instead of cultivating more geese who could possibly lay some eggs, it is like squeezing the existing batch of geese for more eggs. That is counter-productive and deterrent to anybody who wants to come into the tax net, he observed.
"After my remarks that day, I was inundated with calls and messages from other MDs and CEOs, who lauded me for my remarks, adding that I should have said more. I told them 'Why don't you say it?' Why am I the only person to stick my neck out? This self-censorship is also dangerous. We must be able to say what is working and what is not."
Then comes acceptable promotional expenses for marketing. You are capped at 0.5% of turnover. Any FMCG guru will tell you that they spend anywhere from 5-10%. If you are looking at e-commerce establishments, they spend as much as 25%. With this regulation alone, Amazon, eBay or Alibaba would be in violation if they did business in Bangladesh, he also explained.
Promotional expenses exceeding the 0.5% cap would instead be listed as income and therefore, companies will have to pay tax on the expenditure from the upcoming fiscal year 2021-22.
Manzur said that such decisions are sheer laziness on the policymakers' part.
"Why can't we demand to see every year from the National Board of Revenue (NBR) how many new corporates or people are added to the tax net on a year-on-year basis?"
Asked about lack of attention and pro-business policies despite having several former businessmen in the policy making regime, Manzur said that Bangladesh has come a long way, there is much more engagement than before.
"We have got some great policies on paper. However, what disappoints us as a business community is that policies are not implemented. The lawmakers are sincere, but implementation needs to come from the bureaucracy."
On post-pandemic measures for economic recovery, he stressed on more free trade agreements (FTAs), in light of Bangladesh's eventual LDC graduation.
"Compared to Vietnam, who has 60 FTAs, Bangladesh only has two so far. If Vietnam's FTA with the European Union goes through, their tariffs will come down from 9% to 0%. After our LDC graduation, our tariffs will go up from 0% to 9%. With the existing 9%, imports from Bangladesh to the EU will become 18% more expensive. Who will pay 18% more for a t-shirt, jeans or a pair of shoes?"