We want a tax system with transparency, automation

We want a small and medium enterprise (SME)-friendly business environment to generate more employment opportunities and revenues, President of Dhaka Chamber of Commerce & Industry (DCCI) Barrister Md Sameer Sattar tells The Business Post’s Rafikul Islam in an exclusive interview.

The FY24 budget will be announced next month. What do you want in the upcoming budget?

In the upcoming budget for FY24, DCCI expects a simple and business-friendly income tax system that will ensure transparency in tax collection and automation of the overall tax management.

DCCI is the largest SME-led chamber. What types of structural reforms in the business sector are needed to boost the SME sector?

The cottage, micro, small and medium enterprises (CMSMEs) often face multiple challenges, including access to finance, infrastructural development, innovation, the use of modern skills and technologies, and a lack of policy guidance. Many marginal businesses in the CMSME sector have the ability to repay loans but require a long list of documents to obtain institutional loans. Therefore, simplifying the process of submitting documents required for loan approvals is essential.

Furthermore, medium enterprises have a comparative advantage over micro and small businesses in securing institutional credit due to their infrastructure, capital, and asset-based strength. Removing the “medium” category from the definition of CMSMEs will help micro and small businesses have easier access to finance. DCCI has also advocated for a reliable database of CMSMEs both for the formal and informal sectors.

High inflation, higher raw material prices, power and energy price hikes, and other business costs are impeding the SME sector’s development. Do you want any fiscal incentive for this sector in the budget?

The global economic volatility has directly affected our international trade. Globally, the cost of import has increased significantly due to the uncertainty in the foreign exchange market. Due to the excessive hikes in fuel prices in the international market, we have been forced to decide to reduce the import of gas and diesel along with increasing fuel prices in our country.

We need to ensure a speedy and easy disbursement process, which will definitely help the CMSMEs to revive quickly. It is imperative to ensure proper policy support, non-fiscal measures, regulatory assistance, technology adoption, and reduce the cost of doing business for the CMSMEs rather than offering direct fiscal incentives.

However, measures must be taken to ensure funding for the CMSMEs in various methods since we will no longer be able to offer fiscal incentives after the 2026 least developed country (LDC) graduation.

You proposed an integrated tax and VAT administration system during a pre-budget discussion. How will businesses benefit from it?

Bangladesh has the lowest tax-to-GDP ratio in South Asia, which is only 7.5 per cent. Automation will help reduce harassments in tax collection and also widen the tax net. We believe this automation needs to be brought into an integrated system and implemented quickly for more revenue generation and simplifying taxation.

Taxpayers will automatically be included in the tax net if automation is effectively implemented at all levels. This will also make doing business easier, and the government will be able to meet its desired revenue target.

We may learn from the low-income and emerging market economies that have achieved some of the largest revenue gains through tax reforms. However, it is also very important for Bangladesh to follow the International Monetary Fund (IMF) guidelines to enhance tax revenues.

Additionally, there will be no room for non-compliance if automation of the tax administration is made mandatory. To improve the revenue administration’s management, advanced training should be organised for tax officials.

The government and businesses should collaborate to implement automation. Then it will be possible to effectively implement an integrated tax and VAT administration system.

What are the current key challenges that businesses are facing?

In addition to the coronavirus pandemic, global businesses have been facing the impacts of the Russia-Ukraine war, the dollar crisis, supply chain disruptions, high inflationary pressure, energy shortages, and political instability. Bangladesh is no exception.

Due to the international economic downturn, we have also been experiencing lower forex reserves, the devaluation of taka against dollar, high inflation, energy shortages, frequent price hikes of power and energy, low imports due to a lack of letter of credit (LC) opening, and increased balance of payment.

Forward contract as well as local natural gas and resource exploration both onshore and offshore would help meet the local energy demand.

Considering inflationary pressure, do you think the tax-free income limit for individuals should be increased in the next budget?

Inflation in Bangladesh climbed to 9.2 per cent in April 2023, driven by higher commodity prices in the local and global markets owing to the Russia-Ukraine war. This has eroded the buying capacity of the people. We have proposed the National Board of Revenue (NBR) raise the tax-free income limit to Tk 5 lakh for individuals so that they can get some relief.

You recently visited Japan as part of the prime minister’s official entourage. What did you learn from the tour?

Japan is a longstanding development partner of Bangladesh. However, the journey of strategic partnership has further been broadened by the recent Japan visit of our Prime Minister Sheikh Hasina.

Japan emerged as the 11th largest export destination and the 7th largest import sourcing country for Bangladesh, with bilateral trade reaching $3.79 billion in FY22. On the other hand, Japan is the 12th largest source of foreign direct investment (FDI) stock for Bangladesh, with $457.98 million Japanese investment here.

The growing presence of Japanese companies in Bangladesh is a cornerstone of strengthening the economic partnership between Bangladesh and Japan. But there are still huge untapped business opportunities in Bangladesh.

Japan can consider investing in joint ventures and technology transfer in various promising sectors in Bangladesh, including agro-processing, shipbuilding, electronics, jute, energy, automobile, light engineering, ICT and hi-tech parks, 4IR, industrial skills development, SME development, and various service sectors.