The government is going to cut tax at source on supplies of raw materials to manufacturers from 7% to 4%, with a view to reducing production costs, according to sources at the finance ministry.
Besides, the source tax rate on supplies of trading goods will be reduced to 5% from 7% and on supplies of books except those by the government to 3% from 7%.
The existence of various rates of tax at source on different types of supplies causes excessive effective tax burden on business people in certain cases. So, the government is going to cut such a tax as it is committed to ensuring ease of doing business and maintaining a business-friendly environment, finance ministry officials said.
Welcoming this move, Abul Kasem Khan, former president at Dhaka Chamber of Commerce and Industry, told The Business Standard, "Reducing tax at source on raw material supplies is our long-time demand. If it is met, our competitiveness will go up further, which will also help us cope with post-LDC challenges."
The new budget for FY23 is also going to make mandatory submission of audited financial reports by all business entities, defined as companies under the Income Tax Act.
According to the Income Tax Ordinance, any nationalised banking or other financial institutions, insurance bodies and industrial or business enterprises are deemed companies.
From next fiscal year, business regulators, authorities and corporations will also have to submit audited financial reports.
As of now, only the businesses registered with the Registrar of Joint Stock Companies and Firms are regarded as companies and they are to file audited financial statements.
The government has taken this move to bring both companies and auditors under tax compliance and also stop submissions of fake financial statements, ministry officials said.
Seeking anonymity, a chief financial officer at a business conglomerate said small business entities will see their costs rise if the submission of audited financial reports is made compulsory for them.
In the meantime, contributions made to a company's Workers' Profit Participation Fund are also coming under the tax net. Currently, it is considered as expenditure and is exempted from tax.
The government is taking this initiative to levy tax on such a fund in keeping with the labour law, said finance ministry officials, adding that as a company gives a portion of his annual profits to the fund, it is being brought under taxation.
Abul Kasem said the imposition of tax on Workers' Profit Participation Fund will increase business costs.
The new budget is also likely to propose slashing source tax rates to 10% from 20% on non-resident bandwidth payment to promote Digital Bangladesh.
With a view to discouraging making payments of bills through illegal channels, the rate of collecting source tax from other service payments to foreign entities will be slashed from 30% to 20%.