A state agency has recommended simplifying the tax system and avoiding double taxation to encourage both domestic and foreign investment to boost revenue, through an evaluation report.
It has also suggested establishing a separate long-term, industry-specific tax structure for investors.
The agency sent the report to the Ministry of Finance for consideration in drafting the national budget for the upcoming fiscal year 2024-2025.
Tax exemptions withdrawal
The report says that many industrial enterprises are not receiving the expected benefits despite long-term tax exemptions. It suggests experimentally withdrawing these exemptions and reallocating them to other sectors. Additionally, to increase revenue, it recommends raising the rates of withholding tax or advance income tax from taxpayers.
The agency also notes that the VAT and supplementary duty act, the largest revenue sector, is too complex, resulting in businesses not paying VAT correctly. It suggests simplifying the law and making it mandatory for all businesses to file VAT returns online. it stresses the need to increase revenue collection from the insurance sector.
Tax hike on luxury items, eco-friendly cos
The report suggests increasing taxes on luxury items like cars in the budget to discourage imports. It also proposes offering bonded warehouse facilities for importing raw materials for export-focused industries, similar to the garment sector. Additionally, it recommends appointing separate account managers for large taxpayers in Large Taxpayer Units (LTUs) to improve service quality and boost tax revenue.
The agency suggests maintaining at least a 5 per cent corporate tax difference between regular factories and environmentally friendly industries to encourage investment in green industrialisation. It also recommends a 2 per cent tax rebate for all eco-friendly and green-certified industrial enterprises.
The agency reports that only 18,005 Electronic Fiscal Device (EFD) machines have been installed over the past three years up to the present time. To prevent VAT evasion and increase transparency in VAT collection, it suggests accelerating the installation of EFDs. Additionally, it recommends taking effective measures to install EFDs in similar types of shops and establishments categorically, rather than installing them sporadically.
Tax evasion, smuggling and case backlog
The agency also suggests imposing a 1 percent source tax deduction on individuals who withdraw more than Tk 25 lakh in cash annually. It believes this measure will help reduce illegal transactions and money laundering.
The agency believes that misuse of the baggage rule, which allows bringing in gold bars and jewellery, is contributing to the dollar crisis, smuggling, and money laundering. Therefore, it suggests amending the baggage rule to stop or limit tourists from bringing in gold bars. It also recommends reducing the tax-free allowance for gold jewellery from 100 grams to a maximum of 75 grams. Additionally, it proposes that passengers be allowed to use the baggage rule benefit only twice a year.
The report says that many cases of the National Board of Revenue are pending due to legal backlog and delays in the judicial process. As a result, the government is losing thousands of crores in revenue. The agency suggests improving administrative efficiency in the judiciary and resolving tax, VAT, and customs-related cases through e-courts to address this problem.
Cigarette tax restructuring
Cigarettes are the single largest source of revenue. To increase revenue from cigarettes, the existing tax rates can be restructured, particularly by raising the price of higher-tier cigarettes.
The agency notes that while the retail price is printed on cigarette packets, they are often sold at higher prices in retail shops without the government receiving any due revenue. To address this, it suggests printing the "maximum retail price" on cigarette packets and enforcing sales at that price in retail shops.
Field data indicates that many local bidi or cigarette and jarda companies are not within the tax net. These companies should be identified and brought under the tax system.
To improve public health, boost revenue, and work towards a tobacco-free Bangladesh, the agency recommends increasing the health development surcharge on tobacco and tobacco products from 1 per cent to 2 per cent in the FY25 budget.
Unregistered couriers, foreign workers and deposits
E-commerce or Facebook-based businesses often use unregistered couriers, leading to illegal transactions. The agency recommends bringing these unregistered courier services under registration to ensure accountability and collect VAT and taxes from them.
The agency also reports that around 500,000 to 600,000 unregistered foreign nationals are working in Bangladesh. These individuals should be registered and brought under the tax system.
Mandatory health insurance and VAT on premiums could be imposed for citizens engaged in high-risk jobs. This would increase national savings and ensure citizens' quality of life.
Domestic key productive enterprises could receive Production Linked Incentive (PLI) benefits if they produce more than the set targets. This would boost production, leading to increased employment and GDP growth.
To make depositors feel safe and safeguard deposits in banks and financial institutions, the deposit insurance amount could be increased to Tk 3 lakh.
The agency also suggests forming an asset management company to reduce non-performing loans (NPLs) and allocating necessary funds for this in the budget.
