FBCCI for no income, no advance tax

The Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) has proposed not deducting income tax at source from businesses that do not have income.

While giving its opinion on the proposed Income Tax Act, the apex trade body said the globally-recognised policy is to tax the income of taxable entities, suggesting that no tax be levied at source or in advance except on salaries, fees and interests and dividends.

The FBCCI prepared its proposals for changes in the draft law based on views of all business associations and chambers and on the advice of experts and sent it to the National Board of Revenue last Wednesday, according to sources in the know about the matter.

Economists also opine in favour of the top business organisation's stance regarding such a reform to the income tax law.

Businesses, foreign investors and research bodies say the advance income tax deduction in Bangladesh is leading to a rise in the effective tax rate of companies.

At present, tax deduction at source, advance income tax and minimum tax are deducted in 111 sectors. In at least 41 of these sectors, there is no provision for subsequent tax adjustment or refund.

Even if an organisation incurs a loss, the previously deducted tax is not refunded.

Again, those who do not have a Tax Identification Number (TIN) or do not file an income tax return do not get refunds for taxes they pay in advance.

Local and foreign investors have been expressing dissatisfaction with the issue for a long time. They say this is one of the reasons behind foreign direct investment (FDI) not coming into the country at the expected rate.

At present, 5% advance income tax is deducted for commercial imports. The minimum tax levied on turnovers of industrial and service sectors is 0.5%-2%. In addition, tax is deducted at source at the rate of 5%-7% at source in different sectors.

The current income tax system is governed by the Income Tax Ordinance-1984. In 2013, the government took the initiative to enact a new income tax law. But its enactment was delayed due to various reasons.

After extensive discussions, the NBR unveiled a draft of the new law towards the end of last year and sought opinions from the people concerned, including traders. The law is likely to be passed in the next budget session.

Dr Ahsan H Mansur, executive director of the Policy Research Institute, told TBS, "The FBCCI is right to propose not deducting advance taxes because there is no refund system in our country. As a result, the effective tax rate increases, which feeds into production costs for businesses."

Dr Syed Md Aminul Karim, a former NBR member of Tax Policy, said other countries alsp levy minimum tax but their refund system is transparent.

"But we have less opportunity for refunds, which increases the cost of a company. The proposal for not imposing advance tax should be taken into consideration in the case of manufacturing companies," he also said.

Other FBCCI proposals include avoiding multiple taxes on the same income, imposing tax on taxable net income, avoiding discretionary procedures in determining approved expenditure, and determining the gross profit of taxpayers (primarily businesses) who have no ability to keep accounts.

30% corporate tax becomes 45% because of advance tax

The Metropolitan Chamber of Commerce and Industry, the Foreign Investors Chamber of Commerce and Industry, the Bangladesh Investment Development Authority (Bida) and the research organisation Business Initiative Leading Development (BUILD) in recent pre-budget discussions raised the issue of advance income tax, tax deduction at source and minimum tax.

According to them, businesses are not able to take advantage of the reduction in corporate tax rates due to such taxes.

The corporate tax rate has been reduced by 5% to 30% in the last two years, but the effective tax rate goes up to 40%-45%.

Ferdaus Ara Begum, chief executive officer of BUILD, at a discussion organised by the NBR on Thursday, said the rate of refund of tax deducted at source was less than 1%, which was worrying.

On the other hand, Bida said as the corporate tax rate in Bangladesh is higher than in neighbouring countries, investors are refraining from investments here.