Companies in Bangladesh are grappling with rigid minimal taxes and provide tax deductions no subject profitability amid rising production costs and an economic slowdown in most up-to-the-minute months.
Entrepreneurs exclaim the political instability in the country since mid-July has extra impacted their companies, making the collection of minimal tax on the novel charges feel love “at the side of insult to hurt”.
Below the Earnings Tax Act, companies don’t dangle any provision to alter or claim refunds for minimal tax deducted on turnover or, in many circumstances, tax deduction at provide (TDS).
This design that if an organization’s profit is decrease than the come tax deducted, its effective tax price will enhance. Even in case of losses, the tax can’t be adjusted today reducing the corporate’s capital.
In Bangladesh, companies are arena to a minimal tax ranging from 0.6% to 5% of their annual turnover, looking on the form of business. Moreover, export-oriented companies must pay a 1% provide tax on their export cost.
Entrepreneurs and economists retain in thoughts the machine inconsistent with global tax standards and unjust, arguing that it’s some distance a key reason for the slack recede of local and international investments in the country.
Zaved Akhter, president of the Foreign Traders Chamber of Commerce and Industry (FICCI), urged TBS, “Since closing July, provide chain disruptions and varied factors dangle extra diminished company profitability. On this reveal, amassing minimal tax on turnover has driven the effective tax price even larger.”
Dr Syed Md Aminul Karim, former member of the Nationwide Board of Revenue (profits tax policy), says taxing companies that make no profit, or imposing larger effective tax charges due to the minimal tax policies, sends a opposed message to international merchants.
Companies grappling with excessive tax
Crown Cement, in its monetary fable for the first quarter of FY25, disclosed that the effective tax price in the cement sector has surged to 83.61%, when in contrast to 28.13% in FY24.
Within the meantime, one other multinational cement producer, Heidelberg Cement Bangladesh, reported Tk3.ninety 9 crore profit before tax in the July-September quarter this 365 days. But it counted Tk6.95 crore as corporate tax, which change into 174% of the profit. Alternatively, the corporate tax price for the corporate is 22.50%. Here is why the corporate incurred a loss during the quarter.
Md Shahidullah, managing director of Metrocem Neighborhood, acknowledged, “Key uncooked materials for cement, corresponding to limestone, gypsum, flit ash, and clinker, are arena to a 2% to 5% come profits tax on the import stage. From July to October, sales dropped by 30% when in contrast to the same duration closing 365 days, whereas overhead costs dangle no longer reduced proportionately.
“For that reason, with the closing settlement of come tax – and no adjustment option – our steadiness sheet has turned opposed.”
Titas Gas, the bid-owned gasoline transmission company, reported a lack of Tk58.Forty eight crore during the July-September duration. Alternatively, due to the the imposition of minimal tax, it change into required to pay Tk132 crore in corporate tax, pushing its total loss to Tk188 crore.
For the time being, a 2% tax is deducted on the general services supplied by cell telecom operators. Below the Earnings Tax Act, 2023, companies are required to pay this tax even in the event that they raise out no longer generate profits. If profits exceed the tax deducted at this price, the closing tax must also be paid, but if profits are decrease or losses occur, no refund is geared up.
Shahed Alam, head of regulatory affairs at Robi Axiata Diminutive, one in every of the country’s ultimate operators, urged TBS, “Our corporate tax price is for the time being 40%. Alternatively, the tax deducted from us has ended in an effective tax price of virtually 70% for FY24. It change into as excessive as 76% in FY22.”
Within the first 9 months of this 365 days, Robi Axiata reported a pre-tax profit of Tk948.63 crore. Basically based on the corporate tax price of 40%, the corporate’s tax liability stands at Tk379 crore. Alternatively, due to the the minimal tax requirement, the corporate had to pay Tk545.80 crore in corporate tax.
Some companies, even whereas incurring losses, are gentle required to pay tax. Let’s exclaim, Banglalink Digital Communications Diminutive is paying tax on the same price despite working at a loss, which is eroding their working capital.
Entrepreneurs exclaim that in some circumstances, the amount of forms required to claim tax refunds is so burdensome that many companies are unable to receive the refunds. Even after they raise out put together to claim them, there are allegations that companies must pay bribes to tax officers.
Bangladesh Steel Re-rolling Mills Diminutive (BSRM), one in every of the country’s leading steel mills, claims it’s some distance owed over Tk100 crore by the NBR. Alternatively, the corporate has yet to salvage larger the amount, in accordance to Tapan Sengupta, deputy managing director of BSRM.
FICCI Govt Director TIM Nurul Kabir acknowledged, “We’ve got already urged the NBR about the subject, but no certain steps dangle been noticed to this level.”
Snehasish Barua, a tax skilled and partner at Snehasish Mahmud and Company Diminutive, urged TBS, “While some countries raise out impose minimal tax, it’s some distance mostly adjustable. To my files, there isn’t any country varied than Bangladesh that does not enable adjustments for minimal tax.”
In line with sources, countries love the US, India, France, and Germany dangle minimal tax policies but enable for subsequent adjustments. In member countries of the Organisation for Financial Co-operation and Constructing (OECD), minimal taxes would possibly presumably maybe not be refundable but are frequently adjustable.
Exporters face anxiety
RMG exporters exclaim virtually half of of the factories are struggling to make profits due to the rising production costs and stagnant global apparel costs. On this reveal, the 1% provide tax has extra worsened their challenges.
Mohammad Hatem, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), urged TBS that a garment manufacturing facility from Narayanganj paid Tk40 lakh in provide tax closing 365 days. Alternatively, upon annual calculation, the actual tax liability amounted to Tk3 lakh, leaving Tk37 lakh eligible for a repayment. For the reason that guidelines for the time being prohibits refunds, this quantity successfully diminished the manufacturing facility’s working capital.
The corporate tax price on garment export profits is for the time being 12%. Alternatively, the 1% provide tax is deducted on the export cost, no longer on the profits. This successfully requires companies to construct a profit margin of round 8.5% to align with the 12% corporate tax price.
Garment exporters exclaim very few factories are attaining such profit margins at most up-to-the-minute, which design they are successfully paying more tax than the manager’s calculation assumes.
Blanket punishment due to the tax evasion prevention screw ups
Officers on the NBR dangle said that the minimal tax policy change into presented to curb tax evasion. Many companies were avoiding taxes by underreporting profits or declaring losses despite being a hit. To take care of this, the NBR imposed a minimal tax and step by step increased its price.
A senior NBR unswerving urged TBS that come profits tax on company turnover change into presented in the Eighties to stop tax evasion by importers and contractors. After its success, the measure change into step by step extended to varied sectors. Alternatively, the practice of closing settlement based completely mostly on turnover started in 2011 and change into later renamed minimal tax round 2016.
Luftul Haded, vice president of the Institute of Chartered Accountants of Bangladesh (ICAB), urged TBS, “The NBR would possibly presumably maybe gentle target tax evaders thru audits or varied evaluation mechanisms. Alternatively, due to the a lack of capability, compliant companies are also being penalised. Here isn’t any longer an most animated resolution.”
Robi Axiata’s Shahed Alam acknowledged, “It’s an established right theory that corporate tax would possibly presumably maybe gentle be imposed on profit. Alternatively, corporate tax clean on the tainted income, is neatly-known as minimal turnover tax, is against this right tax theory.
“The practice is extremely demotivating for companies moreover for future funding prospects. We judge the manager will retain in thoughts both total withdrawal or refund of minimal turnover tax in approach future.”
