Despite a 2.5 percentage point reduction in corporate tax, listed and unlisted companies could end up paying more taxes than last year due to a new plan to increase withholding tax (TDS), the ICAB said yesterday.
The National Board of Revenue (NBR) is aiming to increase the TDS from 5 percent for local supply to 7 percent, while it remains unchanged at 5 percent for imports, said the Institute of Chartered Accountants of Bangladesh (ICAB).
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If the contradiction is not addressed, it will certainly not bring relief to local businesses promoting industrialization and FDI in Bangladesh, said Mahmudul Hasan Khusru, president of the top tier of accountants.
The ICAB made the observation at a virtual press conference organized to share its analysis of the proposed state budget for the 2021-22 financial year.
She welcomed the corporate tax cut, saying it was higher than in similar economies, including neighboring countries. In a presentation of the proposed measures in the 2021 Finance Act, Snehasish Barua, convener of the ICAB’s Tax and Legal Committee, said the effective tax levied by import-dependent companies, especially suppliers, would be higher after the TDS increase.
“A change in the tax rate could have been more beneficial to the company if the withholding tax rate had been lowered,” he said. He also cited a new rule that requires companies to make payments of over Tk 50,000 through formal financial channels for the purchase of raw materials.
This contradicts the provisions of the VAT and SD Act of 2012, according to which companies must use formal banking channels for payments in excess of Tk 100,000, he said.
The ICAB also suggested that the government set a high budget growth target, noting that reaching the target requires an integrated transition across all sectors of the economy, which is difficult but not impossible.
However, the institute said that tax exemption in various industries, particularly agriculture and agro-based industries, as well as the construction of hospitals outside of the big cities, would ultimately help create new jobs.
She also welcomed proposed tax breaks for cloud services, systems integration, e-learning platforms, e-book publishing, mobile application development services and freelance IT providers through 2024.
However, the panel did not support the move to increase taxes on mobile financial service providers.
The ICAB praised the reduction in input tax on imported goods for production purposes from 4 percent to 3 percent, as this would reduce the current capital requirements of manufacturers.