Corporations in Bangladesh are grappling with inflexible minimum taxes and present tax deductions regardless of profitability amid rising production prices and an financial slowdown in recent months.
Entrepreneurs notify the political instability within the country since mid-July has additional impacted their companies, making the series of minimum tax on the reward rates feel enjoy “including insult to injure”.
Under the Profits Tax Act, companies construct not maintain any provision to adjust or claim refunds for minimum tax deducted on turnover or, in many cases, tax deduction at supply (TDS).
This potential that that if a company’s earnings is decrease than the approach tax deducted, its efficient tax rate will enhance. Even in case of losses, the tax can’t be adjusted straight away decreasing the company’s capital.
In Bangladesh, companies are area to a minimum tax ranging from 0.6% to five% of their annual turnover, looking on the form of industry. Additionally, export-oriented companies have to pay a 1% supply tax on their export price.
Entrepreneurs and economists rob into story the machine inconsistent with global tax requirements and unjust, arguing that it is far a key cause for the leisurely tempo of native and foreign investments within the country.
Zaved Akhter, president of the Foreign Investors Chamber of Commerce and Trade (FICCI), told TBS, “Since final July, present chain disruptions and other components maintain additional diminished company profitability. In this be concerned, collecting minimum tax on turnover has pushed the efficient tax rate even better.”
Dr Syed Md Aminul Karim, historical member of the Nationwide Board of Earnings (profits tax policy), says taxing companies that produce no earnings, or imposing better efficient tax rates because of the minimum tax policies, sends a detrimental message to foreign merchants.
Corporations grappling with high tax
Crown Cement, in its financial whine for the first quarter of FY25, disclosed that the efficient tax rate within the cement sector has surged to 83.61%, when put next with 28.13% in FY24.
Meanwhile, one other multinational cement producer, Heidelberg Cement Bangladesh, reported Tk3.99 crore earnings earlier than tax within the July-September quarter this twelve months. Nevertheless it counted Tk6.95 crore as company tax, which used to be 174% of the earnings. Then all but again, the company tax rate for the company is 22.50%. This is why the company incurred a loss all the map in which by map of the quarter.
Md Shahidullah, managing director of Metrocem Community, said, “Key raw supplies for cement, equivalent to limestone, gypsum, soar ash, and clinker, are area to a 2% to five% approach profits tax on the import stage. From July to October, sales dropped by 30% when put next with the same duration final twelve months, whereas overhead prices have not lowered proportionately.
“Due to this, with the final settlement of approach tax – and no adjustment choice – our steadiness sheet has grew to change into detrimental.”
Titas Gasoline, the tell-owned gas transmission company, reported a lack of Tk58.forty eight crore all the map in which by map of the July-September duration. Then all but again, because of the the imposition of minimum tax, it used to be required to pay Tk132 crore in company tax, pushing its complete loss to Tk188 crore.
For the time being, a 2% tax is deducted on the total products and services equipped by mobile telecom operators. Under the Profits Tax Act, 2023, companies are required to pay this tax even within the occasion that they develop not change into profitable. If profits exceed the tax deducted at this rate, the closing tax have to moreover be paid, but if profits are decrease or losses happen, no refund is equipped.
Shahed Alam, head of regulatory affairs at Robi Axiata Restricted, no doubt one of many country’s greatest operators, told TBS, “Our company tax rate is currently 40%. Then all but again, the tax deducted from us has ended in an efficient tax rate of virtually 70% for FY24. It used to be as high as 76% in FY22.”
Within the first nine months of this twelve months, Robi Axiata reported a pre-tax earnings of Tk948.63 crore. Primarily basically based on the company tax rate of 40%, the company’s tax prison responsibility stands at Tk379 crore. Then all but again, because of the the minimum tax requirement, the company had to pay Tk545.80 crore in company tax.
Some companies, even whereas incurring losses, are soundless required to pay tax. As an instance, Banglalink Digital Communications Restricted is paying tax on the same rate regardless of working at a loss, which is eroding their working capital.
Entrepreneurs notify that in some cases, the amount of paperwork required to notify tax refunds is so burdensome that many companies are unable to receive the refunds. Even when they develop manage to notify them, there are allegations that companies maintain to pay bribes to tax officials.
Bangladesh Metallic Re-rolling Mills Restricted (BSRM), no doubt one of many country’s main steel mills, claims it is owed over Tk100 crore by the NBR. Then all but again, the company has but to recuperate the amount, in accordance with Tapan Sengupta, deputy managing director of BSRM.
FICCI Executive Director TIM Nurul Kabir said, “Now we maintain already told the NBR about the topic, but no definite steps were observed to this level.”
Snehasish Barua, a tax knowledgeable and accomplice at Snehasish Mahmud and Firm Restricted, told TBS, “Whereas some countries develop impose minimum tax, it is on the total adjustable. To my recordsdata, there isn’t one of these thing as a country as adverse to Bangladesh that doesn’t allow adjustments for minimum tax.”
Per sources, countries enjoy the US, India, France, and Germany maintain minimum tax policies but allow for subsequent adjustments. In member countries of the Organisation for Economic Co-operation and Construction (OECD), minimum taxes would possibly well not be refundable but are on the total adjustable.
Exporters face pain
RMG exporters notify virtually half of the factories are struggling to produce profits because of the rising production prices and stagnant global apparel prices. In this be concerned, the 1% supply tax has additional worsened their challenges.
Mohammad Hatem, president of the Bangladesh Knitwear Producers and Exporters Affiliation (BKMEA), told TBS that a garment manufacturing facility from Narayanganj paid Tk40 lakh in supply tax final twelve months. Then all but again, upon annual calculation, the proper tax prison responsibility amounted to Tk3 lakh, leaving Tk37 lakh eligible for a refund. For the reason that legislation currently prohibits refunds, this amount effectively diminished the manufacturing facility’s working capital.
The corporate tax rate on garment export profits is currently 12%. Then all but again, the 1% supply tax is deducted on the export price, not on the profits. This effectively requires companies to impress a earnings margin of round 8.5% to align with the 12% company tax rate.
Garment exporters notify very few factories are achieving such earnings margins at the moment, that implies they’re effectively paying extra tax than the manager’s calculation assumes.
Blanket punishment because of the tax evasion prevention disasters
Officials on the NBR maintain stated that the minimum tax policy used to be launched to curb tax evasion. Many companies had been warding off taxes by underreporting profits or declaring losses regardless of getting cash. To handle this, the NBR imposed a minimum tax and continuously increased its rate.
A senior NBR respectable told TBS that approach profits tax on company turnover used to be launched within the Eighties to stop tax evasion by importers and contractors. After its success, the measure used to be frequently prolonged to other sectors. Then all but again, the prepare of final settlement per turnover began in 2011 and used to be later renamed minimum tax round 2016.
Luftul Haded, vice president of the Institute of Chartered Accountants of Bangladesh (ICAB), told TBS, “The NBR would possibly well soundless target tax evaders by map of audits or other evaluate mechanisms. Then all but again, because of the a lack of capability, compliant companies are moreover being penalised. This shouldn’t be an ultimate solution.”
Robi Axiata’s Shahed Alam said, “It is an established ethical theory that company tax would possibly well soundless be imposed on earnings. Then all but again, company tax amassed on the spoiled earnings, is called minimum turnover tax, is in incompatibility ethical tax theory.
“The prepare is extremely demotivating for companies as effectively as for future investment potentialities. We judge the manager will rob into story either complete withdrawal or refund of minimum turnover tax in advance future.”
