Govt urged to simplify taxation, lift fuel tax

The business community has suggested the government simplify tax and VAT provisions, withdraw taxes on fuel as the government is reducing subsidies, and adopt policies to promote export diversification in the upcoming budget.

They said the measures are needed to combat the on-going economic headwinds and the challenges after the least developed country (LDC) graduation as well as enhance the private sector growth.

Besides, automated tax management, corporate tax reduction, and a long-term roadmap for minimising non-performing loans (NPLs) are required to widen the tax net and ensure gross domestic product (GDP) growth by taming inflation in the coming days, they told a pre-budget discussion on Wednesday.

The Dhaka Chamber of Commerce and Industry (DCCI) and the Daily Samakal organised the event at Bangabandhu International Conference Centre in the capital.

Attending the programme as the chief guest, Prime Minister’s Private Industry and Investment Adviser Salman F Rahman said, “We should reduce tax rates but widen the tax net through digitalisation. However, there is a defect in the tax structure.

“I heard that a businessman is facing an audit by the Chattogram customs because he manufactures mango juice. Mango juice producers are liable to pay taxes, but other juice producers are not,” he said.

He said such policy differences create hurdles for businesses but business owners also have to change their mentality about paying taxes.

“We all have to contribute to the economy by paying the applicable taxes and duties. Even small businesses have to pay that as they make profits,” Salman stressed.

He further said Bangladesh’s tax-to-GDP ratio is still lower than Pakistan, terming it shameful. Salman added, “We need to incentivise industries so that export diversification increases, which will help us survive after the LDC graduation. If furniture and other sectors get the same facilities as readymade garment, they will expand as well.”

State Minister for Planning Dr Shamsul Alam, who addressed the discussion as a special guest, said the National Board of Revenue (NBR) has to make development-oriented policies so that industries can flourish and generate more revenues.

He concurred with businessmen, saying the NBR may withdraw fuel taxes as the government is cutting subsidies. “If that happens, consumers will not face further inflationary pressure.”

The government in January hiked gas prices by up to 178 per cent, which put industrialists in a tough spot. The new rates came into effect in February. The hike came within six months of the previous gas price rise.

After the hike, the captive, small, and commercial power plants had to pay Tk 30 per cubic metre of gas, up from the previous Tk 16. For commercial users, such as hotels and restaurants, the tariff went up to Tk 30.5 per unit from Tk 26.6.

Sectors insiders think gas prices were hiked to meet the International Monetary Fund’s (IMF) loan conditions.

Shamsul said the government has taken measures to increase GDP growth considering inflation and macro-economic perspectives.

“For example, it has reduced annual development programme (ADP) implementation to cut public sector borrowing and ensured food security for all,” he added.

President of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) Md Jashim Uddin said, “Zero tax on fuel is essential as the government is withdrawing subsidies. This is because fuel is used as a raw material.”

Currently, there is 15 per cent VAT and 2 per cent advance income tax on liquefied natural gas (LNG) imports. Besides, there is another 15 per cent VAT at the retail level when it is supplied to consumers after mixing with local gas.

Moreover, there is 22.75 per cent duty on diesel imports. Apart from that, an additional 15 per cent VAT is imposed on distribution while another 2.5 per cent is levied on business.

Jashim said, “We need to increase backward linkages to diversify exports, but due to some statutory regulatory orders (SROs) of the NBR, industries are not flourishing while the cottage, micro, small and medium enterprises (CMSMEs) are not growing at the expected level.”

“For example, an SRO states that a company will get exemptions if it has certain machinery. As big companies have huge capital, they can invest in that type of machinery to get the facility while small entrepreneurs get bogged down in the competitive market.”

Former FBCCI president AK Azad said the country has gas reserves for five years and the existing demand for domestic use is 13.34 per cent.

He said the government can meet the domestic demand through liquefied petroleum gas (LPG) and then use LNG to ensure uninterrupted electricity supply to industries.

The business leader said the government has to revise fuel prices as gas prices have fallen by 80 per cent in the global market.

Azad also said, “A higher duty on solar imports will not encourage people to use it. The solar import duty is 37 per cent here as opposed to 5 per cent in India.”

The DCCI proposed increasing the tax-free income limit for individuals to Tk 5 lakh, reducing source tax to 10 per cent from the existing 20 per cent on bank interests, formulating the insolvency act, and implementing alternative dispute resolution (ADR) to reduce NPLs in the financial sector.

It also recommended strengthening gas extraction from onshore and offshore blocks, mapping long-term financial sources for investment, and boosting the light engineering sector as well as backward linkages.