Corporate tax cut tied to bank transactions

Finance Minister Abul Hassan Mahmood Ali has proposed to lower the corporate tax rate on the condition that companies use bank transactions for all types of income, and a certain level of expenditure and investment.

He has proposed to lower the tax rate by 2.50 per cent in different sectors in the 2024-25 budget tabled on Thursday.

The finance minister’s condition states that companies must use bank transfers for all types of income and receipts, all single transactions over Tk 500,000, and all types of investment and expenditure that cross an annual upper limit of Tk 3.6 million.

“Currently, different tax rates exist for the corporate taxpayers in different sectors. For those companies not defined as publicly traded according to the Income Tax Act, I propose to set the rate at 25 per cent instead of 27.50 per cent on certain conditions,” the finance minister said.

Previously, though the tax rate was set at 27.50 per cent, it would rise to 30 per cent if companies failed to meet the necessary conditions.

“To make the economy more formal and promote sole proprietor companies, I propose to change the sole proprietor company tax rate from 22.50 per cent to 20 per cent on conditions, just like that of non-listed companies,” he said.

The tax rate was previously 22.50 per cent, but it would rise to 25 per cent if companies failed to meet the conditions.

The minister also proposed that if more than 10 per cent of paid-up capital shares were sold through IPO, a listed company would get to pay a tax rate of 20 per cent instead of the existing 22.50 per cent under the same conditions.

However, he proposed to lower the tax rate from 25 per cent to 22.50 per cent for publicly traded companies with 10 per cent or less of paid capital shares on the market through IPOs.

The proposed budget kept the existing corporate tax rate of 37.50 per cent for publicly traded banks, insurance, financial institutions and also for merchant banks.

Mahmood Ali proposed that banks, insurance companies and financial institutions that are not publicly traded, will pay the company tax at the rate of 40 per cent as before.

Although the upcoming budget proposed tax rebates for different companies, the finance minister proposed to increase the tax rate for cooperative societies by 5 per cent.

The tax rate for cooperative societies was hiked from 15 per cent to 20 per cent in a bid to increase the tax-to-GDP ratio, he said in his budget speech.

As before, companies making cigarettes and any type of tobacco products will have to pay a 45 per cent tax, but the finance minister also proposed adding a 2.5 per cent surcharge.

Mahmood Ali also proposed that if more than 10 per cent of paid capital shares of a publicly traded mobile phone operator were available through IPO, the tax rate would remain at 40 per cent as before. But in that case, the company’s pre-IPO placement cannot be more than 5 per cent.

Those mobile phone operator companies not publicly traded will still have to pay the 45 per cent tax rate, the minister said.