The government wants to set the corporate tax rate for listed companies at 22.5 per cent in the upcoming FY2024-25, up from the existing 20 per cent, with the aim to reduce the tax barrier between listed and non-listed companies to 5 per cent from 7.5 per cent.
Currently, the corporate tax rate is 27.5 per cent for non-listed companies, which may remain unchanged in the upcoming fiscal year, while the rate for listed companies, which issue shares worth more than 10 per cent of their paid-up capital through IPO, is 20 per cent.
However, the reduced barrier could have a negative impact on the country’s capital market and reduce willingness to be listed companies and ensure compliance, say sector insiders, adding that the government should raise the tax barrier to collect more revenue.
Finance ministry officials involved in the budget formulation said that the government may propose the new provision in the upcoming national budget for FY25.
The corporate tax for a publicly traded company, which issues shares worth 10 per cent or less than 10 per cent of its paid-up capital through IPO, may be set at 25 per cent from the existing 22.5 per cent.
Besides, if listed or non-listed companies meet a condition of using banking channels to receive all revenues and receipts, conducting all single transactions exceeding Tk 5 lakh, and executing expenses and investments worth over Tk 36 lakh annually, the companies will be incentivised by 2.5 per cent reduced corporate tax.
This means the corporate tax for a listed company, which issues shares worth more than 10 per cent of its paid-up capital through IPO, will be 20 per cent and 25 per cent for the non-listed companies.
The corporate tax for publicly traded companies, which issue shares worth 10 per cent or less than 10 per cent of their paid-up capital through IPO, will be 22.5 per cent.
In the existing law, the provision is fully reversed. If companies do not comply with the conditions, they are penalised by 2.5 per cent increased corporate tax. In that case, corporate tax increases to 22.5 per cent for listed companies and 30 per cent for non-listed.
Although the corporate tax rate for listed ones remains unchanged, hidden messages may hurt listed companies, say insiders.
Dhaka Stock Exchange (DSE) Director Richard D' Rozario told The Business Post, “Companies do not avail themselves of the reduced tax rate due to hidden causes, such as banks’ hidden charges. Under the circumstance, tax officials must be convinced as corporate tax will be higher now, and companies want to get the reduced facility.”
“Earlier, only non-compliance companies tried to find loopholes. Now, every company will be bound to satisfy the tax officials due to the new provision,” he said.
Richard stressed, “Besides, the barrier should be increased to attract more companies to be listed. Data shows that whenever a company is listed, its turnover rises while tax and VAT collection significantly increase as the company comes under the scrutiny of different regulatory bodies.”
Meanwhile, the upcoming budget may end individual investors’ exemption from paying capital gains tax on listed stocks, mutual funds, bonds and debentures in line with the IMF’s prescriptions from the next fiscal year.
Since reports on this issue were published in mass media, the capital market has been continuously going down as it created a kind of fear and panic among investors, according to DSE officials.
To this end, 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 & Co partner Snehasish Barua told The Business Post, “The new provision remains the same as now. The NBR emphasises complying the cashless transactions by providing incentives. That is the spirit.”
“We earlier repeatedly asked NBR to disclose what the actual corporate tax rate is because most companies do not avail themselves of the existing 20 per cent rate. But NBR officials said they reduced the corporate tax. By introducing such provision, 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’s rate. However, from FY2020-21 to FY2022-23, the corporate tax rate was reduced by 2.5 per cent every year.
