Inspiring tax-tweaking

The budget brings good news to listed and prospective listed financial institutions and companies, but not such great news for listed cigarette makers and non-listed banks, insurance and financial institutions.

Bank, insurers and other financial institutions listed with the stock exchanges are going to enjoy 40 percent corporate tax for the next fiscal, down from 42.5 percent in the outgoing fiscal year.

But non-listed banks, particularly foreign banks and insurance companies, are going to pay the usual tax rate of 42.5 percent.

For listed companies, the corporate tax rate is going to come down to 25 percent in fiscal 2015-16 from 27.5 percent at present.

However, cigarette makers listed with the bourses will have to pay a much higher tax rate at 45 percent tax than their non-listed counterparts, on the grounds of harming public health.

Currently, the lone listed cigarette maker British American Tobacco Bangladesh pays 40 percent tax.

The tax rate for non-listed companies is likely to remain unchanged at 35 percent, according to the budget proposal for fiscal 2015-16 placed by Finance Minister AMA Muhith yesterday in parliament.

Taxmen said the tax on listed companies, including financial institutions, has been proposed to be slashed with the objective of gradually bringing down the corporate tax rate in line with the tax rate applicable for individuals.

The cut is aimed at giving a boost to the stockmarket and luring investment to prop up the economy, officials added. The National Board of Revenue (NBR) plans to bring down the corporate tax rate to 30 percent by 2019.

Ali Reza Iftekhar, chairman of Association of Bankers Bangladesh (ABB), said this is a welcome move and long due as well, as the loan provision on classified and unclassified loans is not an allowable expense; the effective tax rate has been ranging from 45 percent to 55 percent for banks.

"The most visible impact of this reduction will be on banks' earnings per share, dividend payment capacity and market price of shares," said Iftekhar, also managing director and chief executive of Eastern Bank Ltd.

A senior NBR official said this direct tax cut would cause a loss of around Tk 400 crore for the state.

To offset the losses and generate additional taxes to attain the increased direct tax collection target of Tk 65,932 crore in the next fiscal year, Muhith looks to the non-listed banks, including foreign ones, insurers, financial institutions and mobile phone operators, along with exporters of all items, imposing advance income tax (AIT) on certain imported commodities and AIT on retail prices of cigarettes.

From next fiscal year, exporters of products ranging from garments, jute to frozen fish will have to pay 1 percent source tax on the value of their exported items, up from 0.3 percent source tax for clothing exporters and 0.6 percent for exporters of other items at present.

Taxmen say the hike in source tax on exported items will allow NBR to log an additional revenue of nearly Tk 2,500 crore.

On the new pay scale for public employees that is going to take effect in July, Muhith, for the first time, suggested taxing the salary, bonus and festival allowances from next fiscal year -- a move that is expected to reduce the disparity in taxation between the public and private sector.

So far, government employees had to pay tax on their basic salaries whereas salaried persons in the private sector face taxes on their salaries, allowances and bonuses.

Muhith termed the practice discriminatory and said the new tax measure is proposed to eliminate the discrimination in the taxation system.

More than 15 imported commodities that were earlier exempted from tax at the import stage have been proposed to be brought under taxes.

Some 2 percent source tax has been proposed on the import of commodities like rice, wheat, raw and refined sugar, oilseed, raw and refined cooking oil, crude and refined petroleum, and petroleum products, lubricant, leather, MS rod and steel, and mobile phones.

Another source of increased tax collection is going to be the 3 percent advance income tax (AIT) on the retail price of cigarettes.

"We expect to log handsome amounts by imposing tax on some imported items and through AIT on cigarette sales," said a senior official of NBR.

In addition, the tax rate for non-residents has been specified in the proposed budget to ensure proper collection of taxes from foreigners, who render various services to local businesses for short periods of time.

The tax official expects that the measure would pay off.

The government also looks to supplement its revenue by taxing the poultry industry, which currently faces zero tax.

A poultry company's income of the first Tk 10 lakh will be subject to 3 percent tax, 10 percent tax on the next Tk 20 lakh of income and 15 percent on the rest of the income.

Similarly, taxes will also be applicable on poultry and livestock feed makers, seed sellers, dairy, frog, mushroom and flower cultivation. Currently, 3 percent tax is applicable on the income from these businesses.

Cooperatives that are engaged in businesses other than farming and cottage industry were also proposed to be taxed at 15 percent from next fiscal year.

In addition, the minimum tax irrespective of place of residence was proposed to be increased to Tk 4,000 from next fiscal year. At present, taxpayers living in the cities have to pay Tk 3,000 in minimum tax against their income; people living in district municipalities face Tk 2,000 in minimum tax and those living in the suburbs face Tk 1,000.

To expand the tax net, Muhith also proposed to bring gratuity income over Tk 2.5 crore under taxes.

Other measures include imposing a 4 percent capital gain tax on lease money and sale of possession by agencies other than the government, 15 percent source tax on rent compensation and signing money to be paid by real estate developers to land owners. Source tax on advertising income of print, electronic and online media has also been proposed to increase to 4 percent from 3 percent at present.

The advance tax on soft drinks and bottled water was also proposed to be increased to 4 percent from present 3 at percent. The source tax on commission of buying houses was also recommended to go up to 10 percent from 7.5 percent at present.

TAX WAIVER

Apart from the measures to increase tax collection, the government also offered tax benefits to some sectors.

These include extension of a tax break for the IT sector, exemption of cottage industry from source tax on exports, waiver of upfront tax on the interest income of treasury bonds and bills and seven types of bonds -- Wage Earners Development Bond, US Dollar Premium Bond, US Dollar Investment Bond, Euro Investment Bond, Euro Premium Bond, Pound Sterling Investment Bond and Pound Sterling Premium Bond.

TAX CUTS

Muhith proposed to reduce specific taxes for the purchase of residential buildings and flats through undisclosed incomes in locations beyond city corporations to encourage small investors to invest in housing.

Some tightening measures

To curb fraudulence in audited financial statements, Muhith proposed imposing Tk 1 lakh as fine along with imprisonment of taxpayers for submitting fake audit reports. Some 2 percent penalty has also been recommended for failure of the companies, particularly the foreign ones, to submit statements of their international transactions.

Some Tk 50,000 has been recommended as fine for not examining the validity of Taxpayer Identification Numbers (TIN). Currently, 25 agencies are supposed to check the validity of TINs in rendering services. In addition, measures have been tightened so that cigarette makers cannot adjust their losses in other businesses with incomes of the cigarette business.