‘Why would foreign investment come here if taxes are higher here than in competing countries?’
Back-to-back onslaught on the economy caused by the Covid-19 and subsequent lockdown is jeopardizing Bangladesh's prospects of becoming a middle-income country.
But a business-friendly environment is crucial to enable that prospect, which only lies in paper and not in reality.
Private investment has also stagnated for a decade. Foreign investment is also declining compared to neighbouring countries.
The business community is blaming the country’s tax regime for this, where Bangladesh has the highest corporate tax in South Asia.
Entrepreneurs lament that due to the ongoing pandemic, not only do they have to incur sustained losses, but also pay more taxes.
But those who do not pay taxes year after year or evade taxes are not facing problems, they alleged.
Syed Nasim Manzoor, former president of the Metropolitan Chamber of Commerce and Industry and the managing director of Apex Footwear, recently went viral for expressing his displeasure in this regard.
At a program, he said: "Bangladesh's tax system is ultimately anti-business. Those of us who do business in the country want to leave it by tomorrow."
Siddiqur Rahman, former president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and former-vice president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), said that the current tax regime is by no means business-friendly.
"If we pay Tk5 lakh in taxes this year, it doesn't matter if we incur losses next year, we will have to pay more than Tk5 lakh in taxes. This cannot be a logical approach,” he said.
"In any given year, profits of a business may be low, but why can't the tax be lower? Looking back, it is clear that those who are paying taxes are under pressure again and again.
“I am not blaming the officials of the National Board of Revenue (NBR), because they are given targets of tax collection. They put pressure on those who pay regular taxes to meet their targets," Siddiqur lamented.
Despite not speaking publicly, the country's big industrialists have supported Syed Nasim Manzur's statement.
But business leaders told Bangla Tribune: "Sharing concerns will increase the danger. There is a risk of further pressure."
“It is important to increase the tax coverage without targeting tax collection. We have to change the way VAT is collected. Entrepreneurs need a chance to survive in a middle-income country. District and upazila level businesses should be brought under the tax net. It is not possible to survive as a middle-income country by pressuring only a few businessmen," said Siddiqur Rahman.
Business needs to be made easier. But the NBR has a few departments that are making things difficult for the business community. In order to survive as a middle-income country, it is necessary to have patriotism not only in the business community but also in all the offices of the NBR, he added.
Various automation projects have been undertaken since the nineties to reduce tax harassment. But the reality is that no other facility has been automated except the adoption of TIN in the individual category.
The online VAT return system has also been stopped. The Authorized Economic Operator (AEO) system could not be regularized to provide facilities like green channels.
Corporate tax dilemma
Bangladesh has the highest corporate tax in South Asia.
The NBR also has the lowest capacity to collect direct income tax among the South Asian countries.
About 75% of the total income tax comes as withholding and advance tax. This means that huge sums of money are deducted in the name of source and advance taxes at the beginning or end of the business before calculating income and expenditure, which increases the cost of doing business.
If the annual turnover of a business is more than Tk3 crore, then the business will have to pay tax at the rate of 0.5%, even if it is a loss.
If raw material or other product is imported, 4% advance VAT has to be paid at the import stage. This VAT refund is supposed to be available but in many cases, it is not available.
According to the NBR, non-listed companies currently have to pay 32.5% tax.
At the same time, in the case of listed companies, the tax is currently 25%.
Other countries such as Thailand, Myanmar, Indonesia and Cambodia have to pay 20% corporate tax, while Sri Lanka pays 29%, and Pakistan 27%.
In India, old companies pay 20% corporate tax and new companies 15%.
Rizwan Rahman, president of Dhaka Chamber of Commerce and Industry (DCCI), said: "Why would foreign investment come here if taxes are higher here than in competing countries?
“We are trying to bring some business from countries like Myanmar and China but when they hear about the steep tax rates they become reluctant to invest.
"If our tax rates were the same as those countries, we could create a business-friendly environment. For this, the local industries have to be strengthened first. Foreigners will be encouraged by seeing local businesses flourish.
"We need to talk about solutions more than problems. Tax coverage should increase. Tax returns and VAT returns need to be fully automated. As the number of taxpayers is not increasing in the country, the NBR has to squeeze a few industrialists again and again for taxes," Rizwan lamented.
“If the tax coverage increases, income will also increase. When it comes to all automation, it can be seen that the computer is not targeting any person. Then no one will be harassed or harassed. Besides, Bangladesh's ranking in the World Bank's 'Ease of Doing Business' index will also improve,” he added.
“We want each NBR circle to be targeted to increase the tax net or the number of taxpayers by at least 1% from next year. In other words, in a circle where there are 100 taxpayers, there should be at least one new taxpayer. This 1% increase will reduce the pressure on existing taxpayers."
Suppose a business earns Tk10 crore, of which he paid Tk32.5 lakh in tax. If he earns Tk5 crore next year, he still has to pay Tk32.5 lakh in taxes. It was seen that an organization has paid a 50% cash dividend in 2019. That organization gave 10% last year, maybe nothing this year. But taxes remain the same, if not, increase. In this situation, NBR officials have to be given a target of increasing 100,000 new taxpayers without squeezing existing taxpayers, said the DCCI president.
Anis A Khan, vice-president of MCCI, said: "We need to stop harassing businessmen who are making a living. Why does an honest businessman have to pay up to 40% tax? The tax on it has been fixed at 25%. But he has to pay a 10% surcharge as he has more resources. Then there is one audit after another and show causes.
“But those who are dishonest are not having any trouble. There is no show cause, no audit for tax defaulters. Billions of people in the country are not paying taxes. Why aren't they being taxed?"
BGMEA President Faruque Hassan said that effort is needed to increase tax coverage.
He also remarked that it is not right to put undue pressure on those who are paying regular taxes.
Economists say the NBR is more focused on easy tax collection than expanding the tax net.
Ahsan Mansoor, executive director of the Policy Research Institute (PRI), said tax officials have shown more interest by levying tax at source as an easy way to collect taxes.
What NBR says
NBR Member (income tax and policy) Alamgir Hossain said that no matter how much the tax coverage increases, and no matter how much the tax rates are reduced, businesses will not be satisfied.
They are being given opportunities every year. But they have been saying the same thing for the last 10 years, he also said.
Nevertheless, he mentioned that efforts are underway to increase the tax coverage.
However, if businesses who evade taxes, VAT and customs duty stop doing so, tax rates would also come down.
In terms of global position and tax to GDP ratio, Bangladesh is the lowest among all South Asian countries.
For a long time, the tax-to-GDP ratio was 8%. Due to the Covid-19 pandemic, this ratio has come down to 7%, similar to the percentage 14 years ago.
Statistics show that the NBR has not been able to increase either the number of individual/institution taxpayers or revenue collection.
They are resorting to grinding companies who regularly pay taxes, as an easier method to realize taxes.
About 84% of income tax is collected at source and advance tax.
The NBR's annual report says that 22% of the money collected at source or in advance comes from contractors paying their bills.
The amount of advance tax paid by importers on the import of goods is about 20%. About 16% comes from source tax on fixed and current deposits kept in the bank.
NBR Chairman Abu Hena Rahmatul Munim said that there would be a big change in the tax department in this year's budget, which is due next month.
He mentioned that there would be special initiatives to increase the tax coverage.
Besides, the NBR is working with the aim that there should be no fear among the people about paying taxes.
He said that document verification has been taken with the Institute of Chartered Accountants of Bangladesh (ICAB) to bring transparency. As a result, dishonest businesses cannot evade tax. It will also be possible to reduce the corporate tax rate in the future.
He also said that the automation process in NBR is being completed quickly.
Incidentally, the NBR's revenue target for the current fiscal year was set at Tk330,000 crore, 10.4% of the country's GDP.
In the next budget, it is being increased by only Tk78 crore.
In the revised budget for the current financial year, the NBR's target has been set at Tk301,002 crore, which is 9.7% of the GDP.