Requirement of cashless transaction for corporate tax cut unrealistic, say businesses

As part of efforts to bring the country's gray economy into the formal economy, the government has proposed to make cashless transactions a condition for availing corporate tax breaks.

However, the businesspersons said the condition is not realistic in the context of Bangladesh, because many of the businesses as well as banks do not have the capacity or preparation for fulfilling it.

Since a large part of the country's supply chain is still accustomed to cash transactions, it will not be possible for most companies to comply with this condition. As a result, they would be deprived of the opportunity to enjoy corporate tax cuts.

In the budget proposal, the government has proposed to reduce the corporate tax rate of listed and non-listed companies by 2.5% compared to the existing rates, on condition that the companies have to transact any expenditure or investment above Tk12 lakh or any other amount through banks.

Cashless transaction is also mentioned as a condition for reducing the existing corporate tax rate in case of association of persons, artificial juridical person and other taxable entity, and one person company.

The publicly traded companies which have more than 10% of their paid-up capital in the share market are entitled to 2.5% corporate tax cut. The companies with less than 10% of their paid-up capital in the stock market will have to follow the rule of cashless transaction. Otherwise, their tax rate will be 2.5% higher than the existing one.

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

Sources close to the FBCCI said the organisation will present their views on the issue at a press conference on the proposed budget on Saturday.

Manzur Ahmed, a trade specialist and advisor to FBCCI, told TBS, "Cashless transactions are not possible in reality. If it is implemented, the country's business sector will be in chaos. This will block the normal flow of business, exhaust the banks and increase the cost of business. It is not possible to implement this decision so quickly."

Representatives of business organisations said people are accustomed to cash transactions in old Dhaka or in the supply chain at the district and upazila level in the country. Companies cannot always go to the banks for transactions even if they want to.

Snehasish Barua, tax expert and partner of Snehasish Mahmud and Company Ltd, told TBS, "Some top-notch companies collect demand draft or purchase orders and then deliver their goods. For them, it is very easy to comply with this rule."

"But, most of the companies collect cash from customers whenever they can – depending on the credit period. Sometimes it is difficult to recover money at all, let alone bringing it through the banking channel at this moment," he said.

He also said one might think about bringing the money using the mobile finance services (MFS). But it comes with a cost – approximately 1%, which the businesses might not be ready to spend at this moment, unless the transaction cost is reduced at a substantially low level.

Giving an example, he said, "Let us assume that ABC Ltd would like to receive all money through banking channels from its distributors or customers to be entitled to this corporate tax rate benefit. The distributors or customers will be required to deploy resources to deposit cash to the bank account after collecting from their customer, issue cheque to ABC Ltd, reconcile with bank statements, etc which involves costs too."

"This is a very welcoming initiative as we know we will have to achieve cashless transactions in the near future. Hence, such a stringent condition must be liberalised from introduction. For example, initially 50% of total sales and other receipts must be transacted through a banking channel. Gradually, the permitted amount of cash transactions can be reduced to 10% or 15% in the next three to four years," he added.

The banks and financial institutions have taken this government initiative positively, but they too think there is a scope of relaxing the proposed condition.

Naser Ezaz Bijoy, chief executive officer of Standard Chartered Bank, welcomed the initiative to bring the informal economy to the mainstream, but he too thinks the threshold for cashless transactions can be set higher and it should be brought down gradually.

"The businesses have to make petty cash transactions sometimes," said Naser Ezaz Bijoy, who is also the president at Foreign Investors' Chamber of Commerce and Industry (FICCI), told TBS.

He further said, "According to the proposal, no one will be forced to comply with this rule. Only those who want to take advantage of the corporate tax cut facility will have to comply with this rule."

He also said the banks are ready to go for cashless transactions.

A large part of the country's economy is left out of the mainstream, and the government has no concrete information in this regard.

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

Bangladesh Economic Association President Dr Abul Barkat has recently given an account of the black money in the country. According to his calculations, the amount of black money in the country from 1972-73 to 2018-19 was about Tk89 lakh crore.

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

In his budget speech on Thursday, Finance Minister AHM Mustafa Kamal said Predominance of cash transactions in the economy is a great hindrance for collecting revenue.

Curbing the multitude of cash transactions through the effective use of ICT and adopting necessary legal steps to this effect will result in increase of revenue collection and at the same time open up a new horizon towards establishing a Bangladesh based on social justice, equality and welfare.