The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) has voiced against the budget proposal offering money launderers an opportunity to legalise unreported offshore assets, saying this would, in reality, encourage capital flight and discourage honest taxpayers.
"This facility will encourage people to launder money abroad," said FBCCI President Md Jashim Uddin while addressing a press conference in Dhaka on Saturday where the country's apex trade body gave its reaction to the proposed budget for fiscal 2022-23.
Moreover, honest taxpayers will consider smuggling money out of the country the most effective way for tax payment when they will see that whitening of black money is possible with only 7% tax, while one has to pay taxes ranging from 22-27% inside the country, he continued.
The proposed FY23 budget placed in the parliament by Finance Minister AHM Mustafa Kamal on Thursday offers an opportunity to legalise immovable and movable assets bought abroad with money siphoned off Bangladesh paying taxes at 15%, and a 10% rates, respectively, if they are not brought back. And if laundered money is brought back, the tax rate is only 7%.
The apex trade body thanked the prime minister for her efforts in formulating a business-and investment-friendly budget, but it expressed concerns over several initiatives, especially the doubling of source tax on exports, continuation of advance income tax (AIT) and advance tax, imposition of VAT and customs duties on imports of certain goods including laptops, doubling of source tax on interest on bank deposits, and increasing the authority of tax officials.
The federation also expressed frustration over the non-increase of the tax-free income limit for individual taxpayers and called for raising it to Tk4 lakh from the existing Tk3 lakh.
Opposing the imposition of VAT on the laptop imports, the FBCCI said, "If good quality laptops were manufactured in the country, we ourselves would have proposed imposing additional VAT on imports in the interest of the protection of the local industry. But, we did not make such a proposal. Then, who has demanded it?"
Similarly, the trade body expressed dissatisfaction with the imposition of VAT on coronavirus protective equipment as the Covid-19 pandemic has not ended yet.
Raising source tax on business' interest income from bank deposits will discourage people to park their money in banks, causing undisclosed assets to increase further, warned Jashim Uddin.
The FBCCI also opposed the NBR's decision to hand over the task of overseeing electronic fiscal devices (EFDs) to a third party and give it 1% of VAT income for this job. Instead, businesses using EFDs should be offered a 1% VAT waiver, the trade body suggested.
Besides, the federation called for sourcing finances from abroad instead of the local banking system to meet the budget deficit. An over-reliance of the government on bank loans could hinder the flow of credit to the private sector, it observed.
At the programme, Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry (DCCI), expressed his fear that increasing the power of NBR officials would increase the harassment of traders.
Speakers at the press conference also called for simplifying the taxation system, raising the VAT rate at the wholesale level to 0.5% and not limiting it to a few products, and relaxing the requirement to deposit 20% of the disputed amount in case of appeal.
The FBCCI said the budget will be more business-friendly if its proposals are accepted.
Among others, Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Executive President Mohammed Hatem, Metropolitan Chamber of Commerce and Industry (MCCI) President Saiful Islam, FBCCI Senior Vice President Mostafa Azad Chowdhury Babu, and Bangladesh Textile Mills Association (BTMA) Vice President Fazlul Hoque attended the press conference.
Doubling source tax to affect exports
The FBCCI thinks that raising the source tax on exports to 1% from 0.5% will negatively impact the country's export earnings.
Mentioning that countries across the world are going through an economic slowdown, FBCCI President Jashim said increasing the source tax on export by 100% is in no way logical at this time.
"The 0.5% tax deducted at source is basically charged on the FOB (freight on board or export price) value. This tax rate is 20% to 25% on real income. Hence, if the tax rate doubles, the export sector will lose its competitiveness. But, the country is badly in need of foreign currencies in these times," he explained.