With an upturn in source taxes without effective refund or adjustment mechanism, corporate taxpayers find annual budgetary cut in corporate taxes apparently juggling the figures sans helping them.
Corporate taxpayers have to pay around 97 per cent of their taxes in the form of advance, minimum and source taxes while the rest 3.0 per cent they pay with their annual tax returns.
Accountants and corporate taxpayers say effective tax rate -- actually payable at the yearend -- for corporates increased up to 10 per cent, depending on nature of companies, due to upward adjustment of source tax or withholding tax.
National Board of Revenue (NBR) data also show substantial rise in corporate-tax collection that went up by 25 per cent in 2020-21 despite reduction in its rate by 2.5 per cent that year.
Advance Income Tax (AIT) at import stage also grew 20 per cent last year, according to the data.
In an analysis of last eight years' data available with the NBR, the FE correspondent found corporate taxpayers having paid, on average, 2.55 per cent to 3.20 per cent taxes with their tax returns from fiscal year 2013 to 2021 while the lion's share in the total paid as source, AIT or advance tax.
Income tax (administration and human resources) member Shaheen Akhter says as per the Income Tax Ordinance 1984, the corporate taxpayers are bound to pay advance tax in four installments if their income crosses a certain ceiling.
"Simple interest would be slapped under the law if any taxpayers fail to pay the advance tax in due time," she adds.
Abul Kasem Khan, chairperson of Business Initiative Leadership Development (BUILD) and former president of Dhaka Chamber of Commerce and Industry (DCCI), says corporate-tax rate for his company came to 66 per cent last year while it paid 44 per cent this year on revenue against applicable rate of 32 per cent.
"Corporate tax should be collected on profit, not on revenue. Advance income tax without refund or effective adjustment made the cut in corporate tax futile for us," he observes, underscoring the need for a recast of the taxing modus operandi.
Institute of Chartered Accountants of Bangladesh (ICAB) president Shahadat Hossain terms minimum tax on corporate entities an undue burden, especially for those businesses that haven't have any taxable profit.
Executive director of the Foreign Investors' Chamber of Commerce and Industry (FICCI) TIM Nurul Kabir finds Effective Tax Rate (ETR), actual payable tax, for corporate taxpayers very high (additional 7 per cent to 10 per cent) compared to the Marginal Tax Rate (MTR). The mismatch is mainly due to inadmissibility of various legitimate business expenses in calculating tax.
Aminur Rahman, former income-tax member of the revenue board, points out "faulty corporate-tax structure" in Bangladesh with six different rates, including for banks, mobile-phone companies and tobacco companies. Such multiple rates are not seen in other countries.
The concept of minimum tax was coined following poor tax compliance in the country so that tax authority can extract as much tax it can in the form of source or minimum tax, he mentioned.
"Cut in corporate-tax rate is eyewash as effective tax rate is increasing," says the ex-official who was involved with the taxing of incomes.
Managing Director of Berger Paints Bangladesh Rupali Chowdhury notices tax incidence going up as authority made some of the expenses inadmissible, stopped rebate option for some inputs or raw materials, deducting at-source tax and collecting minimum tax.
"Those paying taxes are facing pressure while the non-compliant remained comfortable for years," she says.
FICCI sources pointed out a number of inadmissible expenses that are escalating effective tax rates.
Almost 50 to 70 per cent of royalty, technical-service fees, and technical know-how fees become inadmissible in the tax returns of foreign investors due to inconsistencies in Bangladesh Investment Development Authority (BIDA)-and NBR-allowable turnover limits, FICCI data showed.
The chamber of foreign investors also found double taxation on employers in the form of tax on excess perquisite as it is already taxed in the hand of employees.
Tax on promotional expenses has been also affecting growth of Fast Moving Consumer Goods (FMCG) by raising their tax burden from 5.0 to 50 per cent, depending on the profitability of the company.
Snehasish Barua, council member of ICAB, says the direct tax turned indirect tax now as tax is being collected in every transaction.
Another tax official says taxmen are collecting taxes as per the global popular concept 'pay as you earn'.
Most of the taxes are collected round the year while the rest nominal part comes with the tax returns.
He said escalation of commodity prices, mainly fuels, contributed to higher AIT receipts.
"We have no other option but to depend on source-tax collection as corporate-tax evasion is still high in Bangladesh," he says to justify the advance tax deduction.
He mentions that the tax authority is working to automate the tax administration to ensure 'tax justice' through refund or proper adjustment of source tax. (Concluded)
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