The conditions of cashless transactions imposed on companies for availing the benefit of the corporate tax cut are unrealistic in the context of the Bangladesh economy, said listed firms.
The Bangladesh Association of Publicly Listed Companies (BAPLC), in their letter to Finance Minister AHM Mustafa Kamal, earlier this week, appreciated the government's proposal to cut listed firms' corporate tax by 250 basis points to 20% which would help boost corporate earnings and the capital market.
But, the "conditions to be eligible for the reduced tax rate seems to be unrealistic," said the association as the Finance Bill 2022 stated all the receipts and incomes of companies to be through banking channels and also all expenses and investments exceeding Tk12 lakh in a year must be carried out through banking channels.
The country's economic activities, mode of carrying out transactions, size of the cash economy, the availability of banking network, use of digital money and the overall prevailing socio-economic environment are yet to be supportive of going so cashless in business, opined BAPLC.
Companies which are directly selling products to retailers instead of distributors, which have retail chain business, or those engaged in agricultural inputs and outputs will not be able to satisfy the condition of collecting money through a banking channel in full.
On the other hand, many costs like transportation, petty purchases, casual labour bill, conveyance, purchase of agricultural raw materials directly from farmers, etc. transactions will not be possible to be executed through banking channels, reads the BAPLC letter signed by its President Anis Ud Dowla.
The association has also requested the government to reduce the listed corporate tax on banks, non-bank financial institutions (NBFIs) and insurers by 250 basis points to 35% as they are paying a very high tax of 37.5% on their annual pre-tax profits.
Many banks and NBFIs are facing capital shortfalls and struggling with their statutory reserves. Saving some in taxes would help them better cope with the global inflation, BAPLC said.
Companies spend 5% of their pre-tax annual profits to contribute to their Workers Profit Participation Fund (WPPF) and the budget proposal to make the expense inadmissible is contradicting section 244 of Bangladesh Labour Act 2006 which said the contribution would be admissible in the computation of taxable income of companies. It also would end up being double taxation – at first, in the hands of the company and again at the recipient level.
BAPCL requested to leave the WPPF contribution non-taxable.
Double taxation on dividend income should be removed, reiterated BAPLC. It said dividends paid by subsidiary companies should be tax-exempt in the hands of the parent company for the sake of efficient business structure, the integrity of the country's tax system and adopting the global best practices.
The withholding tax on interest income is 10% for all taxpayers and the government proposed to make it 20% for institutions.
"This provision will significantly discourage institutional investors from depositing their surplus funds in banks and NBFIs. Banks and NBFIs will face challenges to attract sufficient deposits and thereby their lending capacity will decrease drastically. As a consequence, the private sector credit and investment growth will be severely impacted," BAPLC said. It requested the government not to increase the tax on interest income.
In the proposed budget for fiscal 2022-23, it has been proposed to increase the source tax on export proceeds of goods from 0.5% to 1%.
"The garment sectors along with other exporters are just overcoming the pandemic disruptions. In the current global context, the proposed tax rate for exporters would be extremely difficult. Therefore, we request to keep the tax rate 0.5 for further advancement of the country's export, especially the main earning garments sector," said the listed firms' association.