Budget FY23: Further corporate tax rate cut on the cards

The Bangladesh government is considering proposing a fresh reduction of corporate tax rates levied on businesses for the third time in a row in the draft national budget.

At present, listed companies are levied corporate tax at 22.5 percent while unlisted companies are supposed to pay the tax at 30 percent.

A highly placed source within the National Board of Revenue, or NBR, confirmed to the bdnews24.com that a 2.5 percent corporate tax cut for both listed and unlisted companies has been proposed in the upcoming fiscal budget proposal.

This essentially means that if this proposal comes into effect, listed companies will have to pay corporate tax at the rate of 20 percent while unlisted companies will be taxed at 27.5 percent.

"Although there is a high risk of a sharp drop in revenue collection if corporate tax rates are reduced, considering the current economic climate, this strategy has nonetheless been adopted to attract local or foreign direct investment,” said the official, who sought anonymity since he was not authorised to reveal information in an official capacity.

If parliament approves the proposal, businesses in Bangladesh are going to experience such a reduction for the third consecutive fiscals, as each time in the previous two fiscals, the NBR cut 2.5 percent in corporate taxes rates.

CURRENT CORPORATE TAX STRUCTURE

According to the existing corporate tax structure, the corporate tax rate on listed banks and insurance companies is 36.50 percent and while unlisted banks insurance companies are taxed at 40 percent.

Merchant banks pay corporate taxes at 36.50 percent.

In addition, companies that produce commodities harmful to human health- like cigarettes, bidis, chewing tobacco and other tobacco products- are levied a tax rate of a maximum of 45 percent.

Listed mobile phone operators pay taxes at 40 percent while unlisted operators are charged at 45 percent. Co-operative societies and private universities and medical colleges are levied a 12 percent tax.

Environment-friendly and compliant ready-made garments companies are charged 10 percent tax while general ones are levied at 12 percent. Textile companies pay corporate tax at 15 percent.

BIG BUSINESSES BARGAIN FOR MORE

Top businesses hailed the decision of cutting corporate taxes more, but they still pointed out that even after the reduction, the rate remains highest in South Asia.

In this fiscal, however, businessmen have put another kind of tax on their crosshairs.

Leading businesses have long been vocal against the advance tax and advance income tax rates, claiming it hinders the local industries to flourish and makes Bangladesh a less attractive location for foreign direct investments.

The advance tax and advance income tax is a type of tax levied on goods imported for commercial purposes only. It was introduced in 2006 to bring unregistered importers under the tax net.

Md Jashim Uddin, the president of FBCCI, the country’s premier association for businesses, told bdnews24.com they would rather prefer a complete withdrawal of advance income taxes, instead of a mere reduction of corporate tax rates.

“We applaud the decision to reduce corporate taxes. But for us, advance income tax has become a pertinent issue,” he said.

"The NBR collects revenue in the name of advance tax and advance income tax, which they are supposed to adjust later while we submit tax returns. That rarely happens. We [businesses] find such management troublesome," the FBCCI president added.

Zaid Bakht, research director at Bangladesh Institute of Development Studies, partially agreed with the businesses regarding the management of advance tax adjustment, but he vetoed the idea of completely withdrawing it.

Labelling the advance tax and advance income taxes as important sources of revenue collection for the government, he emphasised ensuring transparency in the tax management itself.

“It is a like debt to the government and when it comes to debt, the government hardly pays any attention. It needs to make the whole process of adjusting the money it receives from business as advance tax transparent,” he said.

[Written in English by Adil Mahmood]