The maximum limit in the promotional expense for businesses had been fixed at 0.5% of business turnover through the Finance Act 2020
The Metropolitan Chamber of Commerce and Industry (MCCI) has proposed the government to abolish the limits set in promotional expenses of businesses for the budget of the 2021-22 fiscal year.
The maximum limit in the promotional expense for businesses had been fixed at 0.5% of business turnover through the Finance Act 2020.
In a proposal submitted to the National Revenue Board (NBR), the MCCI suggested abolishing Section 30 (P) of the Finance Act which introduced the maximum limit.
If abolished, the promotional expenditure sector will have no limits on being considered as allowance expenses.
Under the act, promotional expenses exceeding the proposed cap is listed as income and therefore companies have had to pay taxes on the expenditure since FY21.
Fast-moving consumer goods (FMCG) and similar industries spend between 5% and 10% of their turnover on promotional activities, according to the MCCI. Therefore, proposed cap on such expenditures means that the cost of doing business increased.
This move has also forced companies to cut down on promotional activities, according to industry insiders.
For Bangladesh, considering the profit rate from 2% to 30%, the effective tax rate has increased significantly, ranging from about 6% to 89%.
To avoid this burden of additional taxes, businesses have reduced promotional activities at a significant rate which can hamper business growth.
Moreover, according to MCCI proposals to the NBR, this prevents every industrial organization from expanding its business. Countries with comparable economies like India, the Philippines, Indonesia, Pakistan, Sri Lanka, etc., do not have such a provision.
From a foreign direct investment (FDI) perspective, the law discourages investment by potential domestic and foreign investors.
In that case, foreign investors are more likely to give priority to neighbouring countries than to Bangladesh, and neighbouring countries have recently reduced their corporate tax rates to attract FDI, the MCCI said.
Manjeno Raihan Khan, the Chief Operating Officer of Concito PR, stated: “MNCs and FMCGs around the globe have a very subjective expenditure in terms of promotion that ranges from a mere product launch to the launch of big campaigns targeted towards the masses.”
With the advent of digitization and the evolution of the communication industry, the number of tools in the promotion sector has increased with consumers consuming information from diverse platforms, he added.
“This discourages businesses as the cap prohibits them reaching their maximum potential in terms of the target market,” said Manjeno.
The MCCI has also proposed reducing corporate tax, tax deducted at source, and withdrawal of supplementary duty or imposition of minimum 5% duty on products of public consumption except those that endanger public health, at the local supply level.