Corporates go cashless…tax cut on cards
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THURSDAY, JUNE 30, 2022
Corporates go cashless…tax cut on cards

NBR

Jasim Uddin
24 May, 2022, 12:30 am
Last modified: 24 May, 2022, 11:02 am

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Corporates go cashless…tax cut on cards

NBR proposes 2.5 percentage point corporate tax cut for listed, non-listed and one-person companies in FY23

Jasim Uddin
24 May, 2022, 12:30 am
Last modified: 24 May, 2022, 11:02 am

The National Board of Revenue (NBR) has proposed that corporate tax rates be slashed by 250 basis points in the upcoming fiscal year, subject to maintaining cashless transactions.

Listed and non-listed and one-person companies will come under the purview of the new tax cut from the next fiscal year, according to finance ministry officials. However, they will have the option to maintain Tk1 lakh in petty cash a month as per the new conditions.

To enjoy this facility, listed-companies will have to comply with another condition of publicly offloading at least 10% of their shares.

Welcoming this move, business leaders say the conditional cut in corporate tax will promote cashless society and empower general investors in publicly-listed and one-person companies.

It will also make breathing space for businesses amid the ongoing inflationary pressure caused by volatile commodity markets globally, which has further been fuelled by the Russia-Ukraine war, they add. 

It will be the third time in a row that the corporate sector is going to enjoy this facility. In FY21 and FY22, the government offered corporate tax cuts to help businesses deal with pandemic-induced losses.

The corporate tax rate will be reduced to 20% from 22.5% for listed companies, 27.5% from 30% for non-listed companies and 22.5% from 25% for one-person companies in the fiscal 2022-23, according to the Finance Ministry sources.

Senior officials of the NBR led by its chairman had met with Finance Minister AHM Mustafa Kamal and the prime minister to finalise the new revenue structure, according to sources in the know about the development.

The finance minister is scheduled to present the next fiscal year's budget in the parliament on 9 June. 

In the current fiscal year's budget, corporate tax was cut to 22.5% from 25% for listed companies and to 30% from 32.5% for non-listed companies.

Dhaka Chamber of commerce and industry President Rizwan Rahman told The Business Standard, "We always appreciate corporate tax reduction, it will give us an edge over our competitor countries."

The private sector has been demanding cuts in corporate tax rates for the last few years as some additional tariff will be imposed on it after the LDC graduation in 2026, he said.

"If we do not take necessary preparations right now, it will put more burdens on businesses," he noted.

The corporate tax cut of another 2.5 percentage points will draw in more foreign direct investment into Bangladesh. The rising dollar price will also come into play in this regard, he said.

Mentioning that cost of doing business and ease of doing business have remained as major concerns for Bangladesh, he pointed out that FDI in the country should be a minimum 5% of GDP.

Contacted, Kamal Quadir, chief executive officer at bKash, told TBS that the corporate tax cut on condition of maintaining cashless transactions would be inspiring for everyone, including subscribers, merchants, service providers, financial institutions as well as MFS operators. 

It is also a recognition of the government's commitment towards strengthening an inclusive digital payment ecosystem, he said. 

"With our innovative technology, customer-centric financial services and extensive agent-merchant network, bKash has already established an infrastructure for everyone, including other MFS and financial institutions. The MFS sector is strongly contributing to the country's GDP, which will continue to grow," Kamal Quadir pointed out.

Five listed companies don't offload 10% shares

According to the Dhaka stock exchange website, 343 companies have been listed publicly, but five of them, such as Bangladesh Services Limited, Rupali Bank, state-owned Investment Corporation of Bangladesh (ICB), Berger Paints Bangladesh Ltd and Walton, do not comply with a minimum 10% share offloading condition. 

State-owned Bangladesh Services Limited, owner of Hotel InterContinental Dhaka, offloaded only 0.4% of its shares, while two other state-owned organisations, ICB and Rupali Bank, publicly offloaded 3.5% and 9.81% shares respectively.  

Coating giant Berger Paints Bangladesh Ltd was listed on the capital market in 2006 through offloading only a 5% stake to general investors.   

Rupali Chowdhury, managing director at Berger Paint Bangladesh Ltd, told TBS that it will be a good move that will encourage companies to offload their shares and get listed on the stock market.

Any companies will calculate how much impact the offloading will have on their profit growth, she noted.

Berger is already in a process to offload the remaining 5% share as per the guidelines of Bangladesh Security Exchange Commission, she said.

In 2020, Walton Hi-Tech Industries PLC was listed on the stock exchange by offloading less than 1% share. The company had given assurance to offload their minimum 10% shares by 2025. The stock market regulator also approved the company's proposal.

What is a one-person company?

In FY22's budget, the government took initiative to introduce the one-person company concept by reducing its corporate tax to 25% from 32.5% for such companies, considering them as non-listed private companies formed under the Companies Act. In the next fiscal year, they will enjoy a further 250 basis point cut on condition of going for cashless transactions.

According to the Registrar of Joint Stock Companies and Firms, 74 One-Person Companies have registered with the regulator in the current fiscal year. 

According to the Companies (Second Amendment) Bill-2020, a single-person company has to have a minimum paid-up capital of Tk25 lakh and a maximum of Tk5 crore. The minimum turnover of such a company will have to be Tk1 crore-Tk50 crore.

Current corporate tax structure

According to the current tax structure, the corporate tax rate is 25.5% for listed companies and 30% for non-listed ones, while single-person company's tax rate is 25%. The rate is 15% for textile mills, registered cooperative societies and private universities.

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 pay a 45% tax and an additional 20% on dividend income.

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

Revenue collection target for new fiscal year

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 will be collected as income tax, Tk1,36,900 crore as value added tax and Tk1,11,000 crore as customs duty. 

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.

Economy / Top News / Budget

Tax Cut / Corporate

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