With an increase in withholding taxes without an effective refund or adjustment mechanism, corporate taxpayers are finding that the annual budget cut in corporate taxes seemingly juggles the numbers without helping them.
Corporate taxpayers must pay around 97 percent of their taxes in the form of withholding, minimum, and withholding taxes, while the remaining 3.0 percent is paid with their annual tax returns.
Accountants and corporate taxpayers claim that the effective tax rate – effectively payable at the end of the year – for businesses has increased to 10 percent, depending on the nature of the business, due to an adjustment to an increase in withholding tax or withholding tax.
Data from the National Board of Revenue (NBR) also shows a substantial increase in the collection of corporate tax, which increased by 25% in 2020-2021 despite a reduction in its rate of 2.5% this year- the.
The advance income tax (AIT) at the import stage also rose 20 percent last year, the data showed.
In an analysis of data from the last eight years available from the BNR, the FE correspondent found that corporate taxpayers paid, on average, 2.55% to 3.20% in taxes with their tax returns from the ‘fiscal year 2013 to 2021 while the lion’s share in the total paid at source, AIT or withholding tax.
According to Shaheen Akhter, member of Income Tax (Administration and Human Resources), according to the Income Tax Ordinance 1984, corporate taxpayers are required to pay withholding tax in four installments if their income exceeds a certain ceiling.
“Simple interest would be slapped under the law if taxpayers did not pay withholding tax on time,” she adds.
Abul Kasem Khan, chairman of Business Initiative Leadership Development (BUILD) and former chairman of Dhaka Chamber of Commerce and Industry (DCCI), said the corporate tax rate for his company was 66%. last year when he paid 44% this year. on revenue over the applicable rate of 32 percent.
“Corporate tax should be levied on profits, not income. The advance of income tax without reimbursement or actual adjustment has made lowering corporate tax futile for us,” observes he, stressing the need for an overhaul of the fiscal modus operandi.
Bangladesh Institute of Chartered Accountants (ICAB) President Shahadat Hossain considers minimum corporate tax to be an undue burden, especially for companies that do not have taxable profits.
The Executive Director of the Chamber of Commerce and Industry of Foreign Investors (FICCI), TIM Nurul Kabir, estimates that the effective tax rate (ETR), the actual tax payable, for corporate taxpayers is very high ( 7% to 10% additional) compared to the marginal tax Tariff (MTR). The mismatch is mainly due to the ineligibility of various legitimate business expenses in the tax calculation.
Aminur Rahman, a former member of the Income Tax Administration, reports a “flawed corporate tax structure” in Bangladesh with six different rates, including for banks, mobile phone companies and tobacco companies. Such multiple rates are not observed in other countries.
The concept of minimum tax was coined as a result of poor tax compliance in the country so that the tax administration could extract as much tax as possible in the form of withholding tax or minimum tax, a he mentioned.
“The reduction in the corporate tax rate is a glance, as the effective tax rate increases,” said the former official who was involved in income taxation.
Berger Paints Bangladesh Managing Director Rupali Chowdhury notices increased tax incidence as authority made certain expenses ineligible, stopped option of reimbursement for certain inputs or raw materials, deducted tax at source and collected the minimum tax.
“Those who pay taxes are under pressure while the non-compliant have remained comfortable for years,” she said.
FICCI sources have reported a number of ineligible expenses that increase effective tax rates.
Almost 50-70 percent of royalties, technical service fees, and technical know-how fees become ineligible in foreign investor tax returns due to inconsistencies in revenue limits allowed by Bangladesh Investment Development Authority (BIDA) and NBR, FICCI data shown.
The chamber of foreign investors also noted a double taxation of employers in the form of a tax on excess indirect benefits because they were already taxed in the hands of employees.
The tax on promotional expenses has also affected the growth of fast moving consumer goods (FMCG) by increasing their tax burden from 5.0 to 50 percent, depending on the profitability of the company.
ICAB board member Snehasish Barua said direct tax has become indirect tax because tax is collected in every transaction.
Another tax official says taxpayers collect taxes under the popular worldwide concept of “pay as you earn”.
Most of the taxes are collected throughout the year while the rest of the nominal portion comes with the tax returns.
He said escalating prices for commodities, mainly fuels, have helped increase AIT’s revenue.
“We have no choice but to depend on the collection of withholding tax because corporate tax evasion is still high in Bangladesh,” he said to justify the early tax deduction .
He mentions that the tax administration is working to automate the tax administration to ensure “tax justice” through the refund or appropriate adjustment of the tax at source. (Ended)