Wednesday, 6 July, 2022

Corporate tax cut on cards

The government mulls curtailing the rate of corporate tax by 1.75 percentage points for both listed and non-listed companies in the upcoming budget to spur private investment to facilitate corona recovery.

Finance Minister AHM Mustafa Kamal will make an announcement on this in the FY23 budget he is expected to place at the national parliament on June 09, finance ministry sources said.

The rate of corporate tax for the companies not listed on the capital market may be cut short to 28.25 percent from the existing 30 percent, while that of listed ones may be slashed to 20.75 percent from 22.5 percent, sources informed.

The non-listed companies other than banks, and non-banking financial institutions (NBFIs) insurance companies will only see a cut in their corporate tax rate, officials linked to budget formulation hinted.

A corporate tax is a tax on the profits of a corporation. The taxes are paid on a company's taxable income, which includes revenue minus the cost of goods sold (COGS) and operating costs.

The government now charges five different rates of corporate taxes ranging from 22.5 per cent to 45 per cent on companies with different characteristics.

 Besides, some lower rates are imposed on some sectors like jute and diamond.

However, the highest corporate tax rate of 45 percent imposed on cigarette and tobacco companies may remain unchanged to discourage smoking and tobacco intake in the country.

Similarly, both listed and non-listed mobile telephone service providing companies might not see any change in the tax rates. Currently, non-listed companies have to pay 45 per cent corporate tax and listed ones have to pay 40 per cent.

Besides, National Board of Revenue (NBR) is likely to continue the existing 37.5 per cent tax rate for listed banks and the banks approved in 2013, while 40 per cent tax on the banks that started their journey before 2013 is likely to remain unchanged.

Merchant banks and insurance companies might have to pay the existing 37.50 per cent corporate tax in 2022-23 fiscal years as well as there might not be any change in the rate in the new budget.

The government has been continuously lowering the corporate tax rates for the last five years eying on wooing more private investment in the country which is considered to be the main driving force of the economy in the coming days. Earlier, there was more than 40 per cent corporate tax in the country.

Still, business leaders and the people of the private sector are pressing for lowering the tax rates further, citing that corporate tax rates in the country are high compared to most other countries.

“I think that the corporate tax rate is still high in the country. These rates should be curtailed more to pull in more investment,” commented former president of Dhaka Chamber of Commerce and Industry (DCCI) Abul Kashem Khan.

Like him, people of the business sectors demand more cuts in corporate tax at different budget-related discussions every year ahead of the budget announcement.

If the corporate taxes are slashed further, investments will be encouraged more, which will eventually help in more employment generation and achieving higher economic growth.

“Foreigners usually decide for investment taking into consideration the corporate tax rates of any country. So, the corporate tax rate is very important for investment,” a former senior researcher at Bangladesh Institute of Development Studies (BIDS) and a noted economic analyst Zaid Bakht said. 

However, local industrial entrepreneurs think that only curtailing corporate taxes cannot help increase investment and there are some other issues as well.

The other issues include infrastructural development, import-export policy, trade policy, labour market and political stability. Healthy economic indicators can also help increase investments, they pointed out.

They admitted that foreign investors take the issue of low tax rates positively as it increases their profit and they can take return some portion of the profits to their country or feel encouraged to reinvest it.

Despite the continuous cut in corporate taxes over the last few years, official statistics do not suggest that private investment is rising in the country at an expected pace.

Bangladesh’s private investment-GDP ratio has been hovering around 23 per cent for the last few years even after the tax cut, tax incentives, cut in interest rates and bringing changes to the existing laws.

On the contrary, private investment faced a huge blow during the corona pandemic that put the country’s economic activities nearly to a halt.

 In Bangladesh, the number of company taxpayers is much lower compared to the number of individual taxpayers.

Company taxpayers account for only 2 per cent of the total taxpayers, but they pay 35 per cent of income taxes, while 65 per cent of income taxes come from individual taxpayers, tax at source and other sources.

The number of regular tax-paying companies is only 30,000 while there are over two lakh registered companies in the country. Banks are the highest tax-paying companies here.