The government plans to trim travel expenses of companies from next year to reduce the operating cost and check money laundering. Moreover, promotional expenses for businesses will be fixed in the upcoming budget.
Sources at the National Board of Revenue (NBR) said, allowable foreign travel expenses for a company will be slashed to 0.50 percent from existing 1.25 percent. This means a company will be allowed to claim 0.50 percent of its annual turnover irrespective of its actual spending.
Currently promotional expenses are considered as admissible expenses as long as it is spent for the purpose of business. With the budget proposal, a company can claim maximum 0.5% of its turnover as allowable expenses. As a result a company will have to pay extra tax to the government.
Finance Minister AHM Mustafa Kamal will propose the new expenditure plan in the upcoming budget slated for June 11.
In the meantime, businessmen fear that putting a harness on the foreign trip expenses may hurt them in international competitiveness.
Rubana Huq, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said, "It makes sense that the government needs to make desperate move to prepare a budget that fits the current fiscal needs of the government to keep the development activities ongoing while facing the Covid's impact on economy. But I think whatever the policy formulated by the government should be broad based, i.e. not to raise revenue at the cost of business, trade and economic growth."
"In this difficult time when the global market is passing through a great uncertainty, while there has been no travel since March, while post Covid diversification of new markets requires even more attention, while we would need extensive travelling as soon as the airports are opened to make up the backlog in marketing of our goods, I think a generalised policy stance such as reducing the travel expenses by 60% is rather conflicting the overall vision," she added.
She further said that RMG will undoubtedly be affected cause we need to travel abroad more frequently to attend meetings with buyers, suppliers, promotional events, etc. and also need to entertain our customers, experts, engineers and consultants for their travel to Bangladesh. I hope a more sector specific approach to take such policy would be appropriate, and we would expect the sectors like RMG that needs to rely heavily on export marketing activities will be kept out of the purview of such policy.
Snehasish Barua, FCA, a founding partner of Snehasish Mahmud & Co, said, "Foreign tours and travels are usually required to explore new markets and maintain communications with the buyers, meeting with regional and global offices of a multinational company. And, a company is required to deduct tax at source while procuring these promotional items which helps to boost sales."
"Fixing a limit in these cases will hold us back in international competition since this will increase effective tax rate of a company. Currently, the government is trying to rationalise tax rate to attract more FDI and becoming more competitive. Hence, even slashing corporate rate might not work positively if we bring this sort of generic provision in our tax laws."
How can we have fixed foreign travel and promotion expenses for all businesses? One size does not fit all," commented Snehasish. He also suggested implementing other means including reviewing genuineness of foreign travel expense, tax withholding compliance on promotional expenses while carrying out the assessment.
"If we put a limit, this might backfire on us. If you fix the limit, people will try to stay within the limit and might not disclose actual expenses. When one wants to suppress actual expenses, they will suppress revenue, too. The NBR also then stands the risk of loss of withholding tax on expenses and minimum tax on revenue."
At the end of a fiscal year, companies have to submit their return on operation costs mentioning the administrative and business expenses to the revenue board. They are levied with the corporate taxes on profit – which currently are 25 percent on companies listed at the bourses, and 35 percent for non-listed companies.
The revenue board alleges that companies often show more expenses for tours travels and promotions to evade tax.
A revenues board official argued that limiting the expenses will counteract the illicit tendency. He told The Business Standard, "We even have allegations that companies are laundering funds in the name of travel expenses."
However, apparel makers, pharmaceuticals and multinational companies fear this new provision will put them in a fix.
For example, a Chattogram-based readymade garment manufacturer showed Tk7 crore travel cost against an annual turnover of Tk625 crore in 2018. This means the company spent 1.20 percent on foreign trips.
Once the new law will be enforced,the company will have to pay 35 percent after reaching the highest limit of Tk3.5 crore.
Dhaka Chamber of Commerce President Shams Mahmud termed the NBR move as "thoughtless".
"You are supposed to monitor whether the companies spend the money transparently. But instead of that, why would you limit the expenses," he raised the question.
Buying companies usually spend a lot on foreign trips for the officials and the buyers to attract businesses Apart from foreign trips, we spend for buyers to show the factories inside the country, said KI Hossain, president of the Bangladesh Garment Buying House Association.
"Limiting travel expenses is totally irrational," he commented.
The country's pharmaceuticals also echoed the same objection. Abdur Rouf Khan, managing director of Opsonin Chemical Industries Ltd, said, "The NBR can go with such plans if they really want to stop progress of the thriving pharmaceutical sectors. We will talk to our association in this regard."
In a recent study, the Bangladesh Institute of Development Studies (BIDS) showed that local drug manufacturers spend 29 percent of their turnover on marketing.
The study says promotional expenses contribute a lion's portion to the marketing costs. The drug manufacturers offer medicine samples and gifts to physicians and clinics so that they prescribe the specific medicine brands to patients.