FY24 budget not conducive to investors: FICCI

Foreign Investors' Chamber of Commerce and Industry (FICCI) President Naser Ezaz Bijoy on Wednesday said the national budget for the fiscal year 2023-24 is not conducive to investors and will have implications for businesses as well as workers in the country.

Speaking at a press conference in the capital, he said investors look for net benefit before investments and foreign ones have the option to choose from 200 countries to invest.

“They search for better places. We have frequently urged the government to reduce tax rates and widen the tax net. The new budget was not as conducive to businessmen as it should have been,” he said.

Naser also urged the government, particularly the National Board of Revenue (NBR), to consult with businesses before formulating laws and called for reducing the tax burden on individuals and corporates as part of tackling the economic headwinds.

He said the draft Income Tax Act 2023 requires extensive reviews as some of the provisions seem unreasonable compared to the Income-tax Ordinance 1984.

“We propose reducing the arbitrary power of officials in taxation and comprehensive digitalisation of the three NBR wings as well as the externally connected systems for seamless transactions.”

High tax impedes investment

Naser said businesses now have to pay a 40-50 per cent tax in various ways and it will be tough to do business in the country in the future.

Around 90 lakh people have the taxpayer identification number (TIN) but around 25-26 lakh pay taxes, with the burden then falling on real taxpayers, he said.

Industries already face customs duty in the range of 5-10 per cent and indirect tax (SD+VAT) of 43.75 per cent, which is the highest across South Asian countries, Naser said.

This will result in a fall in consumption and reduction in government tax collection subsequently, eventually impacting foreign direct investment (FDI) plans and industrial employment. Therefore, the government is requested to rationalise the minimum tax to 1 per cent to allow industries to grow, he pointed out.

The other key concern is the deletion of provisos from withholding tax (WHT) provisions and in the absence of Rules, uncertainties around effective WHT are high. For example, unless the same provision like income-tax ordinance 1984 continues in the proposed act or in the Rules, the tax burden on supply by distributors to modern trade as well as the supply of imported goods will significantly go up, he said.

“The provision of tax on interest on foreign loan and the disallowance of the entire expense for the failure to provide proof of submission of tax return by third party vendors should be omitted.”

Limiting cash transactions for corporates and organisations will put a cap on development as the country is yet to achieve a complete cashless transaction system. The government should allow companies to spend a minimum percentage of their expenses rather than setting a definite number and set a target to achieve the 100 per cent cashless goal in the next five years, he said.

According to the draft income tax act, individuals can no longer enjoy exemptions on income from WPPF, mutual funds, and dividends to certain limits. The leave fare assistance (LFA) will now be considered taxable income.

Also, for the purpose of tax rebate on investment, there is a lack of clarity about whether sanchaypatra will be considered eligible investment. Investment limit on mutual fund/unit fund and government securities have been capped at Tk 5 lakh, Naser said.

“Taxing private recognised provident fund will reduce earnings of the beneficiary while keeping government provident fund as tax-exempt is discriminatory. The FICCI requests the government to revisit the provision as this will badly affect the individual’s net take-home income,” he added.

Increase mouza rate, not fees, on property

Naser said increased tax on property will instigate people to not disclose the real property price in formal documents.

“Instead, they will use the mouza rate. This can deprive the government of a huge source of tax. This is why property tax should be brought down substantially instead of increasing transaction costs. Mouza value must be periodically updated to reflect the market price,” he explained.

He added, “We expected the gradual withdrawal of minimum tax provisions in the new law. Instead, it has been increased significantly, particularly in the carbonated beverage industry from 0.6 per cent to 5 per cent of gross receipts. This will result in a price hike of 30 per cent or more.”