Corp tax may remain unchanged in FY24

As part of implementing the International Monetary Fund’s (IMF) recommendations, the government may not cut or increase the corporate tax rates for listed, non-listed, and one-person companies in the upcoming FY24 budget.

During the latest visit to review Bangladesh’s progress in implementing the conditions for the $4.7 billion loan, the IMF team in a meeting with the National Board of Revenue (NBR) said the corporate tax rates should not be reduced to increase revenue, according to finance ministry sources.

The government slashed the corporate tax rates in the last three budgets with a view to facilitating the rapid expansion of trade and commerce.

Currently, the corporate tax rate is 20 per cent for listed companies, 27.5 per cent for non-listed companies, and 22.5 per cent for one-person companies. The rates were set in the budget to help achieve the private investment to gross domestic product (GDP) ratio target.

“We do not know about the IMF recommendations but expect the government will cut corporate taxes in the FY24 budget,” Dhaka Chamber of Commerce and Industry (DCCI) President Md Sameer Sattar told The Business Post.

He said it is also reasonable to be competitive by cutting the tax rates because it is higher here compared to other nations in the region.

“Besides, it is not true that higher taxes can increase revenue collection. Though our corporate taxes are higher, our tax-to-GDP ratio is the lowest in the region,” Sameer said.

He added the NBR should rather focus on widening the tax net outside Dhaka and Chattogram, recruiting smart officials, and ensuring digitalisation so that the harassment of businessmen will reduce.

Finance Minister AHM Mustafa Kamal in the FY23 budget proposed cutting the tax rate to 20 per cent from 22.5 per cent for listed companies that issue shares worth more than 10 per cent of their paid-up capital through an initial public offering (IPO).

He also proposed keeping the tax rate unchanged at 22.5 per cent for listed companies that issue shares worth 10 per cent or less of their paid-up capital through IPO. But for these companies, the tax rate would be 25 per cent if they fail to meet the conditions, he said.

In that case, all receipts and income must be transacted through bank transfers while all expenses and investments over Tk 12 lakh must be made through bank transfers as well, Kamal said.

He also proposed reducing the corporate tax rate for non-listed companies from 30 per cent to 27.5 per cent.

Moreover, to facilitate the economy’s formalisation and incentivise the formation of one-person companies (OPCs), Kamal proposed lessening the tax rate for OPCs from 25 per cent to 22.5 per cent.

He said in his budget speech the private investment to GDP ratio in Bangladesh was 23 per cent and the government had taken different initiatives to increase it with a view to making the country a developed one.

Pressure mounts to meet IMF conditions

The Russia-Ukraine war, the forex crisis, and the government’s austerity measures slowed down tax collection in the present fiscal year and no one knows when the situation will become normal, sources said.

The NBR, meanwhile, has to meet several IMF conditions as part of the $4.7 billion loan programme. One of the conditions is to increase the tax-to-GDP ratio by 0.5 percentage points in FY24, 0.5 percentage points in FY25, and 0.7 percentage points in FY26.

To achieve the target, the NBR will have to collect an additional Tk 2,34,000 crore in revenue over the next three fiscal years.

The IMF in this regard recommended rationalising tax expenditures, implementing the new income tax and customs act, increasing the number of taxpayers, and installing electronic fiscal devices.

Currently, the NBR provides tax exemptions for different sectors

that account for 2.28 per cent of the GDP.

Besides, the government is likely to set a target for the NBR to collect Tk 4,30,000 crore in revenue in FY24. The target is 16 per cent (about Tk 60,000 crore) higher than that in the current fiscal year.

Because of the slow growth in revenue collection, during the first nine months of the current financial year, the revenue board collected Tk 29,008 crore less than its actual target of Tk 2,54,517 crore.

If the revenue deficit widens to around Tk 35,000 crore at the end of FY23, the NBR has to collect more than 25 per cent taxes and duties in FY24 compared to the previous fiscal year. The revenue board, however, never achieved such growth.