Corporate tax cuts likely in next budget
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MONDAY, JULY 04, 2022
Corporate tax cuts likely in next budget

NBR

Jasim Uddin
08 May, 2022, 12:15 pm
Last modified: 08 May, 2022, 04:27 pm

Related News

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  • Corporate tax cuts to help boost emerging sectors: Entrepreneurs

Corporate tax cuts likely in next budget

Jasim Uddin
08 May, 2022, 12:15 pm
Last modified: 08 May, 2022, 04:27 pm

The National Board of Revenue (NBR) has proposed a reduction in corporate tax rate in the forthcoming fiscal year to make breathing space for businesses.

The corporate tax rate was slashed to 30% from 32.5% for non-listed companies, and for the listed ones it was reduced to 22.5% from 25% in the current fiscal 2021-22.

The revenue board has also proposed increasing the penalty for non-compliant companies, while it is willing to reduce the penalty on delayed submission of VAT and tax returns.

The board has made these proposals in a draft of revenue budget structure for the fiscal 2022-23 aiming to promote local manufacturing industries and bring an ease to consumers, according to sources.

The new budget draft also includes a number of proposals to expand the tax net without increasing tax rates.

Senior officials of the NBR led by its chairman will meet Finance Minister AHM Mustafa Kamal today and tomorrow and the prime minister on 12 May to finalise the draft of revenue budget structure, the sources told The Business Standard.

According to the current tax structure, the rate of corporate tax is 37.5% for listed banks and those approved after 2013, and 40% for non-listed banks, and 37.50% for merchant banks.

Manufacturers of cigarettes, jorda, gul and other tobacco products have to pay a 45% corporate tax, while listed mobile operators have to pay 40% and non listed operators 45% tax.

One Person Company (OPC) tax rate is 25% while it is 15% for textile mills, registered cooperative societies and private universities.

Currently, undisclosed money is allowed for investments in stocks but on condition of paying 25% tax plus a 5% fine.

Manufacturers of cigarettes, jorda, gul and other tobacco products have to pay a 45% corporate tax, while listed mobile operators pay 40% and an additional 20% on dividend income.

Besides, apparel exporters have to pay a 12% corporate tax and it is 10% for green factories.

Senior officials involved with this process mentioned that the new budget will take a number of initiatives to ease business environment and business cost, as well as to reduce the cost of living for people to cope the inflation as considered as various commodities prices already hiked due to the ongoing Russia-Ukraine war and upcoming challenges duce the country is scheduled to graduate to a developing country by 2026.

The new budget may continue to allow untaxed money in the stock market, flats, land, bank deposit, and savings instruments, and cash.

Sources said the NBR officials concerned, led by the board's chairman, held several meetings to review the budget proposals received in pre-budget discussions with different trade bodies, professionals and private agencies and prepared the draft tax structure after closely evaluating all those proposals.

The NBR will now meet the finance minister and the prime minister to discuss the draft, they said, adding the next budget will be finalized after those crucial meetings.

The sources further said every time the prime minister gives directives on important issues. For example, the prime minister decides on tax-free income limits, corporate tax rates, and investment of black money in the capital market. These will be finalised upon her advice in this year's budget as well.

Apart from this, the prime minister will give directions on whether the VAT-tax exemption facility will be increased to keep the prices of import dependent commodities, especially soybean oil, within the purchasing power of the people, they added.

She will also decide on tariff reduction for olive oil, sunflower oil, rapeseed oil, and canola oil, the sources continued.

The NBR has set the revenue collection target for fiscal year 2022-23 at Tk3,70,000 crore.

According to the NBR sources, Tk1,22,100 crore, which is 33% of the total revenue collection target, will be collected as income tax, while Tk1,36,900 crore will be collected as value added tax (VAT), and Tk1.11 lakh crore as customs duty, which are 37% and 30% of total revenue targets, respectively.

The target is 12% higher than the current fiscal year's target of Tk3,30,000 crore. The NBR managed to achieve 53% of the target till February this year.

These targets can be achieved in the existing tax structure as trade and commerce has gained momentum overcoming the Covid-induced slowdown, officials said, adding that the authorities have, therefore, moved away from the thought of raising the tax rates.

Mentioning that the next budget will be similar to the current budget, they also said among the new initiatives will be an attempt to revive the local industry with tax breaks.

In this regard, close scrutiny is on to find out which sectors can be provided with the tax breaks, they said.

Among the domestic industries, electronics, motorcycles, steel, packaging, small and medium industries will see imposition of new taxes. On the other hand, there will be initiatives to ease doing business by strengthening automation activities.

The sources also mentioned that special emphasis will be given to virtual economy, transfer pricing cell, and audit activities to increase tax collection. For this, a new section will be added in the income tax law. Above all, the income tax law will be made business-friendly by updating it.

In addition, there will be guidelines for increasing irregularities in the prevention of misuse of bonds, installation of EFDs (electronic fiscal devices) to curb VAT evasion, and roster-based deployment of monitoring officers.

NBR officials feel if the tax-free income limit is increased, a large number of people will be excluded from the scope of income tax. So, the NBR is against raising this limit. As it is more of a "political decision" than a policy decision, it is the prime minister who has always made decisions in this regard, they added.

Nevertheless, very little revenue is collected from individual taxpayers. Most income tax is levied as source tax, the rest from corporate tax and advance income tax.

According to official data, the latest tax-free income limit was increased in the budget for FY16.

That time, the tax-free income limit for services was increased from Tk2.2 lakh to Tk2.5 lakh.

Since then, the tax-free income limit had been kept unchanged until the current fiscal.

Currently, annual income of up to Tk3 lakh is exempted from tax payment and the ceiling is likely to prevail for next year.

The NBR hiked the tax-free income threshold from Tk2.5 lakh after five years to give relief to people in the lower-income bracket such that they can better manage the economic hardship brought on by the pandemic.

Trade and professional organisations have kept urging the NBR not to increase the tax-free income limit, even though the standard of living has increased.

Economy / Top News

corporate tax / Corporate tax cut / Tax Cut / Budget 2023

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