22.5% corp tax for listed, 27.5% for non-listed

The government has proposed setting the corporate tax rate for listed companies at 22.5 per cent for the fiscal years 2024-2025 and 2025-2026, up from the current 20 per cent. This aims to reduce the tax disparity between listed and non-listed companies to 5 per cent from 7.5 per cent.

Finance Minister Abul Hassan Mahmood Ali announced the corporate tax rate while presenting the Tk 7,97,000 crore proposed budget for FY25 at the Jatiya Sangsad on Thursday afternoon.

“Currently many sector-wise company tax rates are effective. I propose to conditionally make the tax rate from 27.5 per cent to 25 per cent for companies that are not publicly traded as defined in the Income Tax Act, 2023,” he said.

“In this case, all types of income and receipts and all types of expenses and investments above Tk 5 lakh in each single transaction and above Tk 36 lakh in total annually must be done through bank transfer.”

“In order to further formalize the economy and encourage the establishment of one-person companies, I propose to make the one person company tax rate from 22.5 per cent to 20 per cent, subject to compliance with the same conditions as non-listed companies,” he said.

“It is proposed to conditionally make the tax rate from 22.5 per cent to 20 per cent for listed companies if shares exceeding a certain amount of paid-up capital are transferred through IPO (Initial Public Offering).”

“Currently, as part of the effort to achieve the country's tax-GDP rate growth target every year, I propose to increase the tax rate for cooperative societies from 15 per cent to 20 per cent keeping other tax rates fixed as per last financial year,” he included.

However, the reduced disparity between listed and non-listed companies could negatively impact the capital market, reducing the willingness to become listed and ensuring compliance, said sector insiders, adding that the government should raise the tax disparity to collect more revenue.

Although the corporate tax rate for listed companies remains unchanged, hidden aspects may hurt listed companies, insiders noted.

Dhaka Stock Exchange (DSE) Director Richard D'Rozario told The Business Post, “Companies do not benefit from the reduced tax rate due to hidden costs, such as banks’ charges. Therefore, tax officials must be persuaded since corporate tax will be higher now, and companies want to avail themselves of the reduced rate.”

“Earlier, only non-compliant companies sought loopholes. Now, every company will be compelled to satisfy tax officials due to the new provision,” he said.

Richard emphasised, “Additionally, the tax disparity should be increased to attract more companies to become listed. Data shows that when a company is listed, its turnover rises, and tax and VAT collections significantly increase as the company comes under the scrutiny of different regulatory bodies.”

Moreover, a 15 per cent tax has been proposed on any capital gain exceeding Tk 50 lakh received by an individual taxpayer from the transfer of shares or units of a listed company or fund.

DSE Chairman Dr Hafiz Md Hasan Babu has urged the chairman of the National Revenue Board (NBR) not to impose the new tax on capital gains, considering the transitional period of the market.

Regarding this issue, Snehasish Mahmud and Co Founding Partner Snehasish Barua told The Business Post, “The new provision remains the same as now. The NBR emphasises compliance with cashless transactions by providing incentives. That is the spirit.”

“We earlier repeatedly asked the NBR to disclose the actual corporate tax rate because most companies do not benefit from the existing 20 per cent rate. But NBR officials said they reduced the corporate tax. By introducing such provisions, the actual corporate tax, which is 22.5 per cent, will be disclosed,” he said.

In FY2023-24, the government left the corporate tax rate unchanged from the previous fiscal year. However, from FY2020-21 to FY2022-23, the corporate tax rate was reduced by 2.5 per cent each year.

Industry insiders say the increase in corporate tax for cooperative societies may hurt socio-economic rural development programmes across the country.

According to the Department of Cooperatives, there are currently around 1,88,000 cooperative societies working for the country’s socio-economic development, involving approximately 12.2 million people.

These societies play a pivotal role in rural economic development, poverty alleviation, and significant employment generation, according to the department’s latest annual report.