Requirement for cashless transaction for corporate tax cut is unrealistic, companies say

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As part of efforts to integrate the country’s gray economy into the formal economy, the government has proposed making cashless transactions a condition for receiving corporate tax breaks.

However, the business people said the condition is not realistic in the context of Bangladesh, as many companies as well as banks do not have the capacity or the preparation to meet it.

Since much of the country’s supply chain is still accustomed to cash transactions, it will not be possible for most businesses to comply with this condition. As a result, they would be deprived of the possibility of benefiting from corporate tax reductions.

In the budget proposal, the government proposed to reduce the tax rate for listed and unlisted companies by 2.5% from the existing rates, on the condition that companies must make any expenditure or investment above Tk 12 lakh or any other amount. through banks.

Cashless transaction is also mentioned as a condition to reduce existing corporate tax rate in case of association of persons, artificial legal person and other taxable entity, and sole proprietorship.

Listed companies that have more than 10% of their paid-up capital in the stock market are entitled to a reduction of 2.5% in corporation tax. Companies with less than 10% of their paid-in capital on the stock exchange will have to follow the cashless transaction rule. Otherwise, their tax rate will be 2.5% higher than the existing one.

Mostofa Azad Chowdhury Babu, senior vice president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), told The Business Standard: “This proposal is not realistic given the current situation. We will ask the government to relax the rule.

Sources close to the FBCCI said the organization would present its views on the matter at a press conference on the draft budget on Saturday.

Manzur Ahmed, Trade Specialist and Advisor to FBCCI, told TBS, “Cashless transactions are not possible in reality. If implemented, the country’s business sector will be in chaos. the normal flow of business, will exhaust the banks and increase the cost of doing business.It is not possible to implement this decision so quickly.

Representatives of business organizations said people were used to cash transactions in Old Dhaka or in the supply chain at the district and upazila level in the country. Businesses cannot always go to banks for transactions, even if they want to.

Snehasish Barua, tax expert and partner of Snehasish Mahmud and Company Ltd, told TBS: “Some leading companies collect sight orders or purchase orders and then deliver their goods. comply with this rule.”

“But, most businesses collect money from customers whenever they can – depending on the credit period. Sometimes it’s hard to get money back, let alone get it through. through the banking channel right now,” he said.

He also said that one could think of bringing in the money using mobile financial services (MFS). But that comes at a cost – around 1%, which businesses might not be willing to spend right now unless the transaction cost is reduced to a noticeably low level.

Giving an example, he said: “Suppose ABC Ltd wishes to receive all the money through the banking channels of its distributors or customers to qualify for this benefit of the corporate tax rate. The distributors or customers will be required to deploy resources to deposit cash into the bank account after collection from their client, issuing a check payable to ABC Ltd, reconciling with bank statements, etc., which also involves costs. “

“This is a very encouraging move, as we know that we will have to achieve cashless transactions in the near future. Therefore, such a strict condition must be liberalized as soon as it is introduced. For example, initially, 50% of total sales and other revenue must be processed through a banking channel.Gradually, the allowable amount of cash transactions may be reduced to 10% or 15% in the next three to four years,” he added.

Banks and financial institutions have welcomed this government initiative, but they too believe that the proposed condition should be relaxed.

Naser Ezaz Bijoy, chief executive of Standard Chartered Bank, welcomed the move to mainstream the informal economy, but he too believes the threshold for cashless transactions can be set higher and should be lowered gradually .

“Companies sometimes have to do petty cash transactions,” Naser Ezaz Bijoy, who is also the president of the Foreign Investors Chamber of Commerce and Industry (FICCI), told TBS.

He further stated: “According to the proposal, no one will be forced to comply with this rule. Only those who wish to take advantage of the corporate tax reduction facility will have to comply with this rule.

He also said banks were ready to go for cashless transactions.

Much of the country’s economy is left out and the government has no concrete information in this regard.

According to the Office of the Registrar of Joint Stock Companies and Companies, there are about two lakh companies in the country. Of these, approximately 28,000 submit their tax returns to the tax authorities each year.

Bangladesh Economic Association Chairman Dr. Abul Barkat recently reported on black money in the country. According to his calculations, the amount of black money in the country from 1972-73 to 2018-19 was around Tk89 lakh crore.

However, not all money outside the mainstream economy is black money, economists have said.

In his budget speech on Thursday, Finance Minister AHM Mustafa Kamal said the dominance of cash transactions in the economy is a big impediment to revenue collection.

Limiting the plethora of cash transactions through the effective use of ICTs and enacting the necessary legal measures for the purpose will lead to an increase in revenue collection and at the same time open a new horizon towards establishing a Bangladesh based on social justice, equality and well-being.

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