'The proposal to continue with reduced tax rates between 10% and 15 % for RMG and textile sectors would also augment foreign investment, boost exports and generate employment opportunities'
Business consultancy PwC Bangladesh has pronounced Finance Minster Mustafa Kamal’s maiden budget progressive, pro-business and good for foreign direct investment.
“This budget focuses on boosting the foreign direct investment (FDI) in Bangladesh, which is a welcome move on the part of the government.
“To promote FDI, the government has provided relief to foreign companies from multiple layers of taxation on dividend income.
“Moreover, the proposal to continue with reduced tax rates between 10% and 15 % for RMG and textile sectors would also augment foreign investment, boost exports and generate employment opportunities.
“Overall, it’s a growth oriented budget,” said Sushmita Basu, partner and leader, Bangladesh tax and regulatory services at PwC.
While some proposals were likely to meet with resistance on grounds of fairness or feasibility, PwC speakers said they believed difficulties would be resolved.
At a briefing held on Tuesday at the firm’s Gulshan office, presided over by managing partner Mamun Rashid and head of the tax and regulatory practice here, Sushmita Basu, PwC experts presented their initial reactions to the budget and fielded questions from local business and economic journalists.
New measures like allowing the centralized registration of businesses and a requirement to declare the input-to-output coefficient to avail input tax credits were likely to improve perceptions of Bangladesh as a place to do business.
The PwC experts did note that a new requirement for non-resident enterprises to acquire a local VAT agent and outstanding issues affecting transfer pricing required attention.
In addition to promoting growth, they said the introduction of the new VAT act, the proposed expansion of the NBR’s tax net, and the much-debated policy of allowing black money to be whitened, signaled a turning point.
Although many of the budget’s planks – including a continued commitment to human development and sensitivity to welfare needs – carried over from previous budgets, the new measures indicated a move towards adopting a more competitive economic posture, they said.
Debates about specific allocation amounts and their ratios-to-GDP were a healthy part of the budget-framing process, the PwC experts said. They added that representations by trade bodies to the government about specific issues would likely iron out outstanding issues.
The budget, they said, spelled some relief for taxpayers as the tax exemption threshold for SMEs was raised, and personal income tax-rates and exemption threshold remained unchanged.
They acknowledged that the introduction of the new VAT formula was a source of public concern.
Journalists pointed out signs of a ratcheting up of prices for some items.
Despite public misgivings about indirect taxation, the PwC experts argued that the VAT reflected a mainstreaming of international practice that would help simplify taxation across the economy – on both producers and consumers - and that this would ultimately be of benefit.
The four-tier structure of the VAT reflects sensitivity about the impact of the tax burden, they said. It provides exemptions for SMEs with turnover up to of Tk50 lakh and applies a Turnover Tax of 4% for turnover above Tk50 lakh up to Tk 3 crore and above.
They said the expansion of the NBR’s tax net would tap into the country’s revenue base.
A very narrow slice of the country’s individuals and enterprises currently pay in to the national exchequer and widening the tax net would broaden the base.
The NBR’s proposed presence at the zila level also signaled Bangladesh’s adoption of the norms of a taxpayer society. A culture of compliance would ultimately replace a culture of evasion, they said, citing regional examples.
The digitization of the NBR and proposed introduction of electronic fiscal devices at points of sale everywhere in the country would ensure an impartial application of the relevant taxes.
A spirited exchange with journalists about whether or not abuses would take place despite digitization remained inconclusive.
The overwhelming sense that the black money whitening scheme was unfair was strongly asserted by journalists at the briefing.
While acknowledging that the scheme remained exposed to such accusations, the PwC experts drew on similar experiences elsewhere to say that there were few alternatives to bringing the money into the economy.
They pointed out that the scheme, whatever its merits, reflected a desire to bring a sizeable amount of funds into the formal economy.
PwC taxation, regulatory and transfer pricing experts Prasun Kumar Maiti, Yamen Jahangir and Prabir Mitra also participated in the media briefing.