Corporate Tax

Company tax enhance for MFS gamers: throttle business development without cost

Don’t kill the goose that lays the golden eggs – suggests the famous Greek storyteller Aesop. And if you look at the tax measures proposed by Finance Minister AHM Mustafa Kamal for the wireless service providers for the coming financial year, you can’t help but remember the famous fable.

Launched at the turn of the last decade as part of the Bangladesh Bank’s financial inclusion agenda, the platform was the perfect engine for the vision of Digital Bangladesh.

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What has historically been a lengthy exercise has become an example of how technology can make people’s lives easier and better: through MFS, rural people who, due to their geographic location and a lack of business case, mostly remain outside the purview of formal banking channels Get money from your friends and family in the cities – within seconds.

But MFS is more than just an urban-to-country remittance channel – and it is this latent potential that emerged during the global coronavirus pandemic.

Due to the contactless nature of the transactions, the platform came in handy for making payments at point-of-sale terminals, servicing utility bills, and paying salaries due to the fear of the coronavirus lingering on surfaces for hours.

And because of the ease with which such transactions could be made, person-to-person remittances within the system took a huge boom in the midst of the pandemic, and went neck and neck with payout transactions that have long been the most common MFS transaction – and that Giving wings to dream to cashless society.

However, nothing impresses more than the platform’s ability to provide social assistance benefits to rightful beneficiaries.

To avoid queues in union communities amid the pandemic, the government began paying out social nets through the MFS players on a pilot basis to 50 lakh beneficiaries last year.

A common allegation from social security network programs – which are based on money transfers – is that the system can be played with the money ending up in the hands of those who do not need it. The rightful beneficiaries are pushed aside by the middlemen, who are usually local political activists.

But in one fell swoop, the MFS players pushed the middlemen out of the carousel.

The starting point for the MFS players – bKash, Nagad, Rocket, and SureCash – was the list provided by the Treasury.

They checked the cell phone numbers against the Electoral Commission’s NID database to ensure the same person was not credited more than once – a phenomenon that is said to occur with money transfers.

The spotted numbers were sent to the Bangladesh Bank to see if the NIDs were being used to purchase national savings bonds. If so, the numbers have been removed from the list.

The review process narrowed the original list from 50 lakh to 35 lakh, and the amount earmarked for the 15 lakh beneficiary was returned to the Treasury – something unheard of until then.

In short, the process became effective with minimal waste.

Spurred on by the success of the pilot, the government accelerated the use of MFS for its payout purposes. So far, around 3 crore have received their donations through the platform.

The episode shows that the social security network payout can be a well-oiled, efficient machine – when done entirely by the MFS operators.

But for this the industry has to develop a lot and improve its technological backbone and its logistical infrastructure many times over. In short, it will require a huge investment in the industry.

As of April, the latest available data from the central bank, there were 9.6 million MFS accounts registered, but only 38.5 percent of them had transacted in the previous 90 days. A year earlier there were 8.5 million registered accounts and 2.8 million active accounts.

There are currently 15 MFS players – with bKash, Nagad and Rocket having the upper hand.

Neither player writes profits, which means that the 32.5 percent corporate income tax – which is a tax on a company’s profits – brings nothing into the treasury for MFS players.

Even so, corporate income tax has been amazingly increased in the proposed 2020-21 fiscal year budget. For unlisted MFS players, it would be 40 percent and for listed ones 37.5 percent.

This begs the question: what was the point in raising the interest rate if the result were the same as before?

The only effect it would have would be to deter foreign investors – at a time when the industry was becoming attractive to them given the robust growth of recent years.

And this isn’t the first time the government has halted the growth of a promising industry.

When the wireless industry was booming, the government had placed the highest tax burden on operators in the world – to the point that the industry stopped attracting foreign investment and some big names packed their bags.

Ultimately, mobile users are the losers because they have to be content with poor service.

A similar pattern can now be seen in the MFS industry, which is still in its infancy.

And it’s not that the National Board of Revenue is currently getting nothing from the MFS industry: It gets 15 percent sales tax and 12 percent income tax from the transactions on the platform as well as 0.6 percent of the losses – the gross income of the players as sales tax close.

In the first 10 months of the 2020-21 financial year, total transactions on the platform amounted to Tk 552,375.7 billion, an increase of 46.5 percent compared to the previous year.

A corporate tax of 40 percent is not a small amount and is within the reach of banks and non-bank financial institutions, which have many opportunities for profit.

Worse still, corporate income tax doesn’t matter – for the foreseeable future.

Isn’t it in the government’s best interest to promote the industry and achieve its full potential? Why nibble on the bud?

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