A tax expenditure committee has recommended narrowing the tax gap between publicly traded and private limited companies.
It also proposed phasing out tax exemptions on capital gains for individual investors in the capital market.
Share capital gains are the largest source of the country's tax expenditure (TE), accounting for an estimated 13.47% of the total tax expenditure.
The committee also recommended scrapping the tax rebate on investments in secondary shares.
Currently, tax rebates are allowed for investments in both primary and secondary shares.
The report says that total direct tax TE -- in the form of exemptions, waivers, rebates and other methods -- amounted to Tk125,000 crore in FY21.
The report was prepared by the tax expenditure committee, led by Dr Lutfunnahar Begum, additional commissioner of taxes in the National Board of Revenue's (NBR) direct tax wing.
Currently, publicly traded companies enjoy a reduced corporate tax rate of 22.5% to 25%, while private company tax rates range from 27.5% to 45%.
However, India, for example, does not differentiate in tax rates between listed and non-listed companies.
In the report, the committee recommended continuing the tax exemption on remittances.
For agro-businesses, it recommended introducing a new tax tier with a higher rate for those earning hefty profits.
Currently, the maximum tax rate on agribusinesses is 15%.
For microfinance institutions, the report recommends a reduced tax rate to 5% or imposing taxes only after a certain income threshold.
It suggested maintaining the current tax rate for educational institutions and continuing tax benefits for economic zones and high-tech companies.
The committee suggested introducing a sunset clause or a reduced tax rate (between 10% and 15% or a capped rate) for IT-enabled services.
Taxmen recommended reviewing the tax benefit for investors in savings certificates to determine if it creates an uneven advantage for specific income groups or industries.
The final settlement of withholding tax tends to favour the higher income groups or the individuals with higher investment in saving certificates. The final settlement of withholding tax should be revisited and a slab rate may be introduced instead, it said.
The current direct tax exemption for ICT sector companies is due to expire on June 30, 2024.
The report recommends maintaining the current 20% corporate income tax rate on dividends but suggests reviewing tax benefits on salary income to prevent them from disproportionately benefiting specific groups.
The committee proposed revisiting existing tax amnesty rates for undisclosed income holders, considering its upward revision.
They also suggested a gradual phasing out of tax exemptions for the power and energy sector in the long term.
