Now global economies are up there to fight each other, not in freeing trades from roadblocks, but in reducing fiscal constraints such as high taxes on corporate and personal incomes. Recently, to the surprise of even of the hardened market fundamentalists and many of the Congress members of his own party, President Trump announced reduction of corporate taxes on businesses' income from 35 per cent to 15 per cent and also proportionately on personal income tax. The announcement made the wealthy Americans very happy as they did not dream of such a big boon even the other day.
A few months back, the United Kingdom also announced a big cut in its taxes on businesses' profits proposing to take it down below 20 per cent. India, in its last fiscal budget, announced bringing corporate income tax down below 23 per cent. In many European Union members, taxes on profits of businesses are below 30 per cent. In Malaysia and Singapore, tax on business profits is much below what Bangladesh has now on this account.
Bangladesh has more than one tax rates when it comes to taxing business profits. The corporate income tax in Bangladesh ranges from 25 per cent to 35 per cent. Tobacco, mobile telephone and banking companies are paying above 40 per cent and other types of companies are paying 25 per cent if these are listed with bourses and 35 per cent, if not listed. Tobacco and non-listed mobile telephone companies are paying the highest at 45 per cent. The listed banking and mobile phone companies pay this tax at the rate of 40 per cent.
By any consideration, Bangladesh's corporate income taxes are among the highest in today's world. But the high taxes hardly justify any economic logic. To make businesses globally competitive, the world economies are now in a race as to which economy can offer how much lower tax rates. The policymakers all over the world are quickly coming out of the old paradigm that higher tax rates bring in more revenue income for the government.
Rather, policymakers in many countries are seeing more tax revenue with the lower tax rates. The argument is, if the taxable entities feel that when the tax rates are lower, they will be more willing to show all incomes in the tax returns and pay more taxes. Bangladesh's problem is widespread tax avoidance and evasion which can be handled in a better way by asking the taxpayers to pay at lower rates. It is unimaginable that there are only 11,000 or so taxpayers belonging to the rich section of the society by showing more than Tk 20 million as the net worth in their filed tax returns. The numbers of the rich or the people showing net asset value of more than Tk. 20 million should be many folds. The tax return filers are being asked to pay more but the non-filers are going scot-free.
Every year honest tax payers run from pillar to post to collect tax-return related papers but when they submit the returns with the papers, many are asked by the tax offices to explain what they filed in the tax returns. This hurts the honest taxpayers. The revenue board should see who are not paying tax at all. Listed companies deserve special attention from the tax authority as these companies serve public interest.
Any income distributed by the listed companies as dividends go to thousands of small investors who again pay tax on personal accounts against the dividends they received. If the government wants to help grow a risk-taking middle class in the economy, then it should think of reducing tax rate on dividend incomes of individual stock market investors. The rate can be, as suggested by the bourses also, 10 per cent, the rate at which this tax is deducted at source. Corporate income tax for the publicly traded companies deserves special attention in the sense that whatever extra income these companies will accumulate in the accounts from such a reduction will go to the accounts of thousands of investing public.
A reduction in corporate income of the publicly traded companies should be done in public interest. The Bangladesh economy has to compete in a global environment. When other economies of the world are in a race towards reducing taxes on businesses, Bangladesh cannot remain silent in this respect.
The writer is Professor of Economics University of Dhaka,