How might it affect you?
The budget proposals for 2019 clearly show that the government is determined to continue on its growth trajectory across sectors. Though the government emphasized on boosting the revenues by widening the tax base, it assured that none of the budget proposals would lead to a spiralling price rise on essential commodities.
The VAT and Supplementary Duty Act 2012 was one of the highlights of the new government’s first budget. The introduction of the new law, in line with the international best practices, is a welcome move on the part of the government, and it will improve the ease of doing business in Bangladesh.
Various proposals in the Act have been made keeping in mind the principle of extending the VAT net, reducing the exemptions gradually, controlling inflation, and developing local industry.
The proposal to continue the existing VAT exemption facility to the industries located within Bangladesh Economic Zone Authority (BEZA) to a few specific local heavy industries, and also to the Public Private Partnership (PPP) projects, would certainly boost foreign direct investment (FDI) and the country’s infrastructural development.
To provide further impetus to FDI, relief has been extended to foreign companies from multiple layers of taxation of dividend income. Additional investor-friendly measures have been introduced to encourage pay-out of dividends.
On one hand, retention of profits beyond prescribed limits would now invite additional taxes at the rate of 15% on such excess. On the other hand, a tax of 15% has been proposed on the issue of bonus shares by a domestic listed company.
The proposal to continue with reduced tax rates for ready-made garments and textile sectors would definitely augment foreign investment in addition to bringing in growth in export and generation of employment opportunities.
The budget has also introduced certain rationalization provisions. Earlier there were no prescribed timelines for the issue of a “NIL” withholding tax certificate by the National Board of Revenue (NBR).
Recognizing the uncertainty created by the absence of such timelines, the government has now proposed a 30-day period for issuance of a certificate. Just so as not to make the small and medium enterprises (SMEs) feel left out, the government has proposed to raise the turnover limit for tax exemption of such SMEs from Tk36 lakh to Tk50 lakh.
The finance bill has also addressed an important aspect in the arena of social welfare which would encourage increased employment of the physically challenged. A 5% rebate on the tax liability is proposed on any business enterprise which has 10% of the total workforce comprising of those who are considered physically challenged.
Infrastructural development is key to a growing economy like Bangladesh. In order to enhance infrastructure growth, the budget seeks to extend the sunset date for tax holidays to specified industrial sectors and physical infrastructure development sectors.
The benefit is also proposed to be extended for sectors such as agricultural machinery, furniture, home appliances, mobile handset, toys, leather and leather goods, LED television, and plastic recycling.
Investment in economic zones and high tech parks is proposed to be accepted without scrutiny on the sources of funds subject to a payment of 10% tax on such invested amount.
Notably, however, the sunset clause for a tax holiday for non-coal based power projects (expiring in December 2019) has not been extended. It remains to be seen if a separate statutory regulatory order is issued to this effect.
Even though it was anticipated that there would be some reductions in the corporate income tax rates, no such changes were announced. Rather, in computing the tax liability of mobile operators, the criteria of minimum tax have been enhanced from 0.75% to 2% of turnover.
On the personal taxation aspect, no changes have been proposed in the basic tax rates or tax exemption thresholds. For individuals, the threshold limit for imposition of surcharge of 10% of income tax has been enhanced from Tk2.25cr to Tk3cr.
Individuals having a net wealth exceeding Tk50cr would be subject to a surcharge being higher of 0.1% of the net wealth or 30% of tax payable.
The threshold level for exemption on dividend income received by an individual from a company listed in any stock exchange in Bangladesh has been doubled to Tk50,000, while threshold level (latest assessed income) for payment of advance tax has been enhanced from Tk4 lakh to Tk6 lakh.
The detailed budget proposals make it amply clear that the government has attempted to strike a balance between attracting FDI and incentivizing domestic industry, keeping tax rates mostly unchanged while trying to increase revenue collection by expanding the tax base.
A large cross-section of stakeholders such as the investor groups, the small and medium scale sector or even the public at large would welcome the progressive nature of the budget.
While the indirect tax regime is expected to witness a sea-change due to the introduction of the new law, changes on the direct tax front are aimed more towards rationalization and for implementing reforms.
The finance minister had begun his speech by mentioning that revenue collection up to March 2019 of the current fiscal year was 54.9% of the original annual target. The budget deficit was pegged at Tk1,25,293cr.
It remains to be seen whether the budget proposals announced for the forthcoming period succeed in achieving the ambitious tax revenue target of Tk3,77,810cr, so as to meet the targeted growth on the thrust sectors, such as education, skill development, health, and electricity for all.
Sushmita Basu is Partner and Leader, Bangladesh Tax and Regulatory Services. Syed Yamen Jahangeer is a Director and Bikash Chanda is an Associate Director, PwC.