Tax cuts for MFS and restaurants praiseworthy, but some remain sceptical
With the budget for fiscal year 2021-22 finally passed in the parliament, several noteworthy amendments were announced on Tuesday and the day after, including the corporate tax cut for mobile financial service (MFS) providers, and value added tax (VAT) reduction for restaurants and cafes.
But business leaders remained sceptical as some aspects, such as giving field level customs officials more power to scrutinize importers and their consignments have raised several eyebrows.
MFS will enjoy 30% corporate tax as other companies, a 2.5% drop from the previous 32.5%.
The reduction in the corporate tax rate was approved at the National Parliament on Tuesday.
Although the proposed budget by the finance minister for the fiscal year 2021-22 had sought an increase of up to 40%, the National Board of Revenue (NBR) on Thursday had sent a new proposal to parliament asking for changes in the Finance Bill 2021.
The finance minister had proposed increasing corporate taxes on MFS up to 40% from the existing 32.5%, to bring them into the category of banks, insurance companies, and other financial organizations that have been paying tax at that rate.
However, NBR had asked for changes in light of demands from MFS providers to be not considered as financial institutions like banks.
Maj Gen Sheikh Md Monirul Islam (retd), chief external & corporate affairs officer at bKash, the leading MFS provider, said: "The new step of the government will significantly pave the way to flourish country’s thriving MFS industry. It will also create an opportunity for potential local and foreign investment in the MFS industry.
The government is further integrating digital financial services through the use of MFS in the distribution of various incentives, including social safety allowances. This decision of the government will bring more dynamism to the role that organizations like bKash have in improving the quality of life of the people through integrating technological innovations and new services regularly."
Restaurants sigh relief
The National Bureau of Revenue (NBR) reduced VAT rates to revive the restaurant sector from the pinch of the pandemic.
According to the amended Finance Bill 2021, VAT on AC restaurants has come down from 15% to 10%, while for non-AC restaurants, VAT was reduced from 7% to 5%.
About the VAT policy, NBR officials said that the restaurant sector was on the brink of collapse due to the Covid-19 pandemic since last year.
The government stepped in to support them with this measure, they also said.
The restaurant owners welcomed the decision, adding that the decision was a positive step in overcoming the multi-faceted losses the sector had been incurring since the outbreak in March last year.
Talking to Dhaka Tribune, Imran Hasan, general secretary of Bangladesh Restaurant Owners Association (BROA), said that they were thankful to the prime minister, finance minister, NBR, and also the FBCCI for this decision.
“We presented a number of demands for the proposed budget of FY22, though not all of our demands were met. However, one of our main demands was to reduce the VAT rate, which the government obliged. We welcome this decision,” he also said.
Imran Hasan also said that the restaurant sector was one of the emerging sectors in the country but it was almost drowning in the pandemic situation.
“Now we demand a single organization to monitor the restaurants and the government should create this in coordination with all of 13 organizations under different ministries and departments are involved in restaurant management and another 7 organizations including the DC office, Safe Food Authority, Consumer’s Rights Protection Authority, RAB and BSTI - monitor the restaurants,” he also said.
Syed Andalib Rahman, organizing secretary of BROA, told Dhaka Tribune that the decision of reducing VAT rates in the restaurant sector was a positive sign for the restaurant owners, as they had been demanding it for a long time.
“We need a lot of cooperation from the government to turn around this pandemic. We are thankful to all the concerned for this decision. However, supplementary duty is also a burden in this sector. A provision in this regard is also important,” he added.
He also said that they do not get SME loans as the sector is labeled as a sector dealing with perishable goods. The government should remove this obstacle through dialogue and give them long-term loans on easy terms from the SME Foundation and a monthly incentive for the officials and employees of the hotel and restaurant sector for monthly food assistance for them for the period of July to December of this year.
An official from the NBR told Dhaka Tribune that this decision was taken mainly for the benefit of the restaurants and the customers, as the sector had severely suffered during the pandemic.
Providing this facility will make it easier for them to turn around. Moreover, customers will also be benefitted from this, he also said.
He also said that one of the complaints of restaurant owners for so long was that many restaurants were discouraged from registering for VAT due to higher rates.
“Now they can no longer make that complaint. Since the VAT rate has been reduced, all restaurants will have to pay VAT at the amended rate and the NBR will monitor it regularly,” he also said.
According to BROA, there are currently about 60,000 restaurants across the country, with more than 8,000 in the capital alone. Close to 2.8 million people depend on the restaurant industry for their livelihoods, while the number is several times higher if it includes the supportive sectors.
Customs officials get more power
The powers of customs officers have been increased from the next financial year according to the approved fiscal budget for 2021-22.
Although businessmen and its representative associations had urged the National Revenue Board (NBR) to reduce the power of its field-level officers, the exact opposite has now been legalized.
From now on, assistant commissioner-level officials will be able to resolve customs issues by verifying importers' documents.
Previously, only a deputy commissioner had that power to scrutinize the importer's documents, and penalize them.
The capacity of customs officials to resolve customs disputes was slightly amended from the proposed budget presented on June 3 in the parliament.
The budget for the fiscal year 2021-22 has been passed by voice vote in the parliament on Wednesday with Speaker Shirin Sharmin Chowdhury in the chair.
Earlier, an officer could check and sort invoice documents worth Tk2 lakh and resolve customs disputes.
In the budget proposed on June 3, it was proposed to increase it to Tk5 lakh, which has been reduced to Tk4 lakh.
Additionally, the proposed budget advocated giving the power of the commissioner and additional commissioner to settle a consignment dispute up to Tk50 lakh. Earlier this limit was Tk20 lakh.
At the time of approving the finance bill, the proposed limit of Tk50 lakh was reduced to Tk40 lakh.
However, as per the approved budget, an assistant commissioner will now be able to examine invoice documents worth Tk10 lakh. The limit of Deputy Commissioner has been fixed at Tk20 lakh and that of Joint Commissioner at Tk30 lakh. In this case, no change was made from the proposed budget.
The business community thinks the increase in power will discourage entrepreneurs from investing as there is an existing uncertainty surrounding its abuse.
Speaking to Dhaka Tribune, Rizwan Rahman, president of Dhaka Chamber of Commerce and Industries (DCCI), said: “There is always a chance of abuse of power if more power is vested with revenue officers and assistant commissioners. DCCI always said that the revenue officers should not have the authority to investigate and/or punish business entities in case of a dispute. In the same manner, in invoice of import, it should be vested with the deputy commissioner of customs for rational judgment and assessment of any dispute of false claim.”
An Assistant Commissioner may help settle small invoice-based disputes faster to ease the cost of business. However, the revenue officer should be exempted from this job for the better interest of all, said the DCCI President.
Shams Mahmud, owner of Shasha Denims speaking to Dhaka Tribune said decisions like this dampen business sentiment and dampens the mood for new investment, especially now amid the pandemic when the government has been trying to encourage private sector growth for new job creation.