New budget commutes trade penalties, cuts essentials’ taxes

Multiple trade-facilitation measures like corporate-tax variables to promote capital market, commuting penalties for trade offences and cut-down tax rates for pharmaceuticals and other essentials are envisaged in the new budget.

The current interim government is set to cut corporate tax for publicly-listed companies on the capital market by 2.5 per cent in the upcoming budget, widening the much-demanded tax gap to 7.5 per cent between listed and non-listed companies.

Thus, the corporate-tax rate would be reduced to 20 per cent for listed companies while it would remain unchanged at 27.5 per cent for non-listed firms.

Currently, listed companies pay 22.5-percent taxes. The gap is currently 5.0 per cent.

This one of the budgetary measures, to be announced on June 2, is meant to encourage more companies to come on the capital market for securities listings for giving a much-needed fillip to the bourses.

Also, a set of trade-facilitation measures envisaged include a reduction in penalties for misdeclaration of imports and clerical mistakes in Import General Manifesto, and Import Policy Order. Tenure of calculating interest on demanded taxes pending with the courts would be reduced.

Currently, misdeclaration of imported goods is subject to payment of up to 400-percent penalty at customs point. The punitive payment might be commuted to200 per cent for the fiscal year 2025-26.

Silly clerical mistakes in IGM are currently subject to at least 50-percent penalty on payable duty taxes. The minimum benchmark would be abolished allowing importers to pay tax as per "gravity of their mistakes".

On cargo misdeclaration, the minimum ceiling of Tk 50,000 would be withdrawn.

Any contradiction in IPO is subject to severe penalty of minimum 100 per cent now. The minimum ceiling would also be done away with.

On pending court cases, accumulating rate of interest on the demanded tax is now calculated for ten retrospective years. It would be amended, making maximum two years on counting penalty. With this, any businesses that file court cases would pay interest on demanded tax, and after it is settled by the court, for two previous years instead of existing ten years.

On capital-market taxes, Dhaka Stock Exchange (DSE) Chairman Mominul Islam says the market needs at least 10-percent tax gap between listed and non-listed companies to enhance its depth.

"We have proposed the tax incentives to encourage more companies to come in the capital market," he adds.

Many have found significant increases in their tax liabilities after being listed on capital market as the companies have to maintain all compliances, he points out.

"Unless more companies come, the market would remain volatile as prices decline on some selective companies, affecting total indexes," says the premier bourse's chief.

Saiful Alam, President of the DSE Brokers Association of Bangladesh (DBA), hails the government move to widen the minimum spread, urging the government to increase it to 10 per cent.

The measure would attract more reputable and larger companies to enter the market, he says.

"Recently, we learned that the proposed spread will be 7.5 per cent, which is certainly a step in the right direction. However, we urge the government to reconsider our request and increase it to 10 per cent."

It is important to recognize that once a company is listed, it contributes to the treasury through both direct and indirect taxes, he adds.

"Therefore, we should strive to encourage more companies to go public," says the stockbrokers' association leader.

Meanwhile, the government is likely to expand the scope of import-duty exemptions for essential raw materials and products used in the manufacture of cancer-prevention drugs, as well as other medicines, in a bid to make treatments more accessible across the country.

In addition, plans are underway to reduce import duties on medical equipment to make healthcare services more affordable to all.

In this regard, the upcoming budget for FY 2025-26 is expected to include a total of 79 new products in the list of tax-exempt items under three existing SROs or Statutory Regulatory Orders.

According to sources at the Ministry of Finance, the budget proposal includes duty exemptions for 23 new raw materials used in cancer drug production, 36 raw materials for other pharmaceutical products, and 20 types of equipment used in the pharmaceutical sector.

Officials from the Ministry of Finance, speaking on condition of anonymity, said the initiative to include 23 new raw materials for cancer medicine production was taken based on recommendations from the Directorate General of Drug Administration.

According to the list, notable raw materials include Fostamatinib, Deucravacitinib, Peficitinib Hydrobromide, Povorcitinib, Ivarmacitinib, Rilzabrutinib, Momelotinib, Levoleucovorin, Ganciclovir, Tezepelumab, and Faricimab - all of which are used in the production of cancer- treatment medicines.

Furthermore, the ministry has proposed extending the 10% customs duty on the import of medical equipment and apparatus to all types of hospitals across the country. This move aims to improve healthcare services nationwide by making such benefits accessible to all private hospitals. Currently, only specialised or referral hospitals enjoy this fiscal facility.

The Ministry of Finance has also proposed introducing a dedicated HS code for the import of the Tangential Flow Filtration (TFF) System - a crucial device used in vaccine production - to allow it to be imported at a reduced 1.0-percent duty.

Talking to The Financial Express, A.M. Shamim, founder-Managing Director of Labaid Group, said, "If the government extends referral- hospital facilities to all hospitals, it will encourage further investment in the healthcare sector."

Monjurul Alam, CEO of Global Business Development at Becon Pharmaceuticals Ltd, adds: "We currently enjoy duty-free import of raw materials under the existing SRO benefits. If the government expands the list, it will help reduce the cost of medicine production."

Moreover, to keep inflation under control, the government plans to reduce the tax at source on commissions for supply of essential commodities. The current rate of 1% is expected to be halved to 0.50%, according to reliable sources.

The pared-down rate will apply to local LCs used for importing or supply of rice, wheat, potatoes, onions, garlic, peas, chickpeas, lentils, ginger, turmeric, dried chillies, pulses, maize, flour, salt, sugar, edible oils, black pepper, cinnamon, nuts, cloves, dates, cassia leaves, computers, computer accessories, and all kinds of fruits

Increased tax-free income limit: The government is likely to raise the income-tax threshold for individual taxpayers from Tk 3.5 lakh to Tk 3.75 lakh. However, the next slab will be extended to Tk 310,000 from the current Tk 100,000, bringing the total slab to Tk 685,000. Alongside this, the tax rate for this slab will be increased from 5% to 10%, according to sources in the Ministry of Finance.

Ministry sources further stated that the tax-free income limit will be Tk 425,000 for women, Tk 500,000 for persons with disabilities, and Tk 525,000 for gazetted freedom fighters.

Meanwhile, the tax slabs for the next levels of income will be adjusted as follows: the next Tk 400,000 of income will be taxed at 15%, the following Tk 500,000 at 20%, the next Tk 500,000 at 25%, and any remaining income will be taxed at 30%.

Relief for first-time taxpayers: There is some good news for first-time tax-return filers. The proposed budget is expected to introduce a provision in the Income Tax Act setting a minimum tax of Tk 1,000 for new taxpayers. This initiative is aimed at reducing the tax burden for new filers and easing tax-related anxieties.

However, the minimum tax for other taxpayers will be Tk 5,000.

The tax-free perquisites limit is also planned to be increased to Tk 2.0 million from the current Tk 1.0 million.

For private-sector employees, one-third of the total of their total income or Tk 4.5 lakh - whichever is lower - is currently exempt from tax. This exemption is proposed to be raised to Tk 5 lakh.

Talking to The Financial Express, Snehasish Barua, a chartered accountant and a director of SMAC Advisory Services Ltd, said: "Reducing TDS on essential goods is a good move, but the list of essential items needs to be far more extensive."

Increasing the perquisite limit is also a wise move, as it addresses a double-taxation issue already flagged by the High Court and helps businesses in reducing the unnecessary tax burden.

"However, eliminating the Tk 100,000 second tax slab could hit low-income earners hard, with some facing an additional Tk 2,500 in tax even with the higher basic threshold of Tk 375,000."

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