Reducing corporate taxes will allow entrepreneurs to reinvest and as a result, job creation will increase, say business leaders
Finance Minister AHM Mustafa Kamal on Thursday recommended several tax cuts and exemptions while placing the budget for the 2021-22 fiscal year in parliament.
The minister proposed a reduction of tax for non-listed companies to 30% from 32.5% and for listed companies to 22.5% from 25%, aiming to boost the ratio of private investment to GDP and incubate rapid growth of trade and commerce.
According to the finance minister, the present private investment to GDP ratio stands at 23%.
“Reduction in corporate tax rate is expected to facilitate achievement of the target for private investment to GDP ratio,” he said.
The government is going to reduce tax for One Person Companies (OPCs) from 32.5% to 25%.
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Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry (DCCI), termed this a prodigious initiative but added that a progressive reduction rate must be maintained for the next three years to boost business confidence.
"We appreciate the move by the government to promote a more business-friendly environment. We also look forward to the implementation of the budget in the upcoming fiscal year. It may prove to be a challenge as the previous budget was implemented 46% till April this current fiscal year. But we are committed to supporting the government in its endeavour," he added.
"We, the business community, appreciate the proposals placed in the budget. Corporate tax, which was previously high compared to other countries, has been adjusted accordingly. We also appreciate the social safety net schemes and the allocations for the marginalized groups," said MA Momen, vice president of FBCCI and president of Bangladesh Ink Manufacturers' Association.
"Some good concessions have been made to help the industry and business interests and this will help to rejuvenate the economy that is still facing challenges from the Covid-19 impacts. We can say that the budget is a realistic one, provided the implementation of it is done effectively and efficiently. The key is not allocating bigger amounts into various sectors but ensuring that the amounts are managed well," he added.
Abul Kashem Khan, former president of the DCCI and chairperson of Business Initiative Leading Development (BUILD), said: "Businessmen are happy with the reduction in corporate tax rates. This has been demanded for a long time and the government has finally done it.”
"This is a pro-industry and pro-business budget. Our long standing demands to reduce corporate tax on listed, non-listed and one-person companies have finally been addressed in this budget," said Mir Nasir Hossain, former FBCCI president and managing director of Mir Akhter Hossain Ltd.
However, increase of corporate tax on mobile financial services should be reconsidered as it used by a large section of people. Declaring tax holiday for establishing hospitals and clinics outside of major cities is a time-appropriate step given the current environment, he also said.
"We also welcome tax holidays for electronic consumer goods manufacturing in Bangladesh. All these steps will help generate much needed employment following the negative impacts of the pandemic," Hossain added.
Reducing corporate taxes will allow entrepreneurs to reinvest and as a result, job creation will increase, he added.
To make doing business easier, the finance minister has proposed to mitigate functional and procedural complications in the Value Added Tax (VAT) and Supplementary Duty (SD) Act, 2012 and VAT and SD Rules, 2016
And to this end, he proposed to reduce the tax burden for the industrial entrepreneurs of Bangladesh and decrease Advance Tax (AT) from 4% to 3% for the import of raw materials for industries.
The finance minister also proposed imposing 1% VAT in case of registration of non-residents and to consider invoices issued by banks, insurance companies, and ports as VAT invoice.
“Although the main purpose of the NBR is to collect revenue, various types of tax exemptions, reductions or tax benefits are being given for the sake of industrialization, employment generation, increasing the scope of business, protection of domestic industries, attraction of foreign investment, and establishment of a just and equitable society,” Kamal said in his budget speech.
The government has given tax breaks to some new sectors, which include agriculture, food, and home appliance products, light engineering, ICT, women-led SMEs, private hospitals as well as “Made in Bangladesh” products, to attract investments.
Institutions that will invest in these sectors will get tax holiday benefits for the next 10 years.
Finance Minister Kamal also proposed tax exemptions for companies engaged in the production of automated vehicles in Bangladesh to promote local brands.
New IT-enabled services entailing system integration, e-learning platform, e-book publication, mobile application development service, and IT freelancing will also enjoy tax exemptions.
Kamal further proposed to offer tax exemption for 10 years on production of some selective IT hardware if manufactured in Bangladesh, subject to certain conditions.
"The current tax exemption provided to the ICT sector needs to be further expanded to facilitate the government's vision of building a digital Bangladesh. I propose to further expand the existing 22 Information Technology Enabled Services (ITES) in this budget," he said while unveiling a new budget proposal in parliament.
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Tax exemption will also be offered for 10 years to general hospitals with a minimum of 250-bed capacity and those having children and infant care, women and maternity care, oncology, wellbeing, and preventive medicine units, and also to specialized hospitals with a minimum of 200-bed capacity.
The proposed budget FY22 also placed a VAT exemption at the local manufacturing stage on the production of sanitary napkins plus a two-year extension of existing VAT exemption on importation of certain raw materials used for the production of sanitary napkins and diapers.
The finance minister also proposed continuing the existing exemption facilities at the import, manufacturing, and trading stage on Covid-19 test kit, PPE, and vaccine, as well as reducing duty and taxes on ingredients used in anti-cancer medicine manufacturing and API for medicine manufacturing.
A concessional facility has been given for the import of raw materials required for the production of medical products as well, while tax on the blood tubing set used for dialysis service has been reduced.
To promote employment of members of the third gender community, tax rebates for organizations employing 10% third gender employees or 100 third gender employees have also been proposed in the budget.
"I propose to insert a necessary provision in the law to provide tax rebate amounting to 75% of the total salary paid to the workers from the third gender or 5% of payable tax, whichever is lower, to the employers who will employ 10% of their total workforce or more than 100 workers from the members of the third gender," said Kamal.
Earlier, Dr Muhammad Shahadat Hossain Siddiquee, development policy researcher and professor of economics at the University of Dhaka, had said: “Ultimately, businessmen will consider the marginal cost and marginal benefits while employing 100 third gender people. Only feasibility will allow companies to capitalize on this 5% corporate tax exemption.
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“To achieve the Sustainable Development Goals (SDGs), keeping no one behind is the motto, and to address this reality, the private sector has to come forward for creating better and more inclusive workplaces,” he added
He also highlighted that developing a humane psyche before employing third-genders at the workplace is a prerequisite.
A proposal has been made on the VAT exemption on autism-related services and the continuation of the existing VAT exemption for a year on “Meditation service” to protect mental health.
Furthermore, a 10% supplementary duty has been proposed for locally manufactured “long pan” to make sanitation facilities cheaper for rural people and reduction of duty and taxes of feed ingredients used in poultry, dairy, and fish feed autism service.
Additionally, duty tax on stainless steel has been reduced from Tk1,500 to Tk500 per tonne, and tariff concessions to import raw materials for production of liquefied petroleum gas (LPG) cylinders and import of equipment for the production of local toys have been sought.