Businesses, taxmen differ on corporate tax rates

Businesses and tax-officials are holding opposite views over the existing corporate tax rates, taking into consideration the country's poor tax-GDP (gross domestic product) ratio and investment scenario.

The businesses have long been claiming that the country's corporate tax rates are among the highest in this sub-continent, which, according to them, is an impediment to trade and investment.

On the other hand, the taxmen have come up with a new analysis showing that the existing corporate tax rates, in real sense, are far below those of the imposed rates due to higher tax exemption and reduced rates of tax facility offered to various sectors.

In a recent internal analysis, the National Board of Revenue (NBR) Income Tax Wing has found that effective corporate tax rates hover from 3.78 per cent to 6.10 per cent, while the existing corporate tax rates range from 25 per cent to 45 per cent.

In Bangladesh, corporate tax rate for listed companies is 25 per cent, and it is 35 per cent for non-listed companies. However, financial institutions (FIs), tobacco companies, and mobile phone operators pay tax at higher rates.

Apart from these large taxpayers, the NBR receives corporate tax from majority of the companies at a rate of 35 per cent.

In fiscal year (FY) 2016-17 and FY 2017-18, the corporate bodies contributed around 60.35 per cent and 62.19 per cent of the aggregate income tax collection respectively.

The NBR estimated around Tk 10 billion loss in a FY in case of reducing corporate tax rate by 1.0 per cent.

Dr Ahsan H Mansur, Executive Director of the Policy Research Institute (PRI), said the existing corporate tax rates are giving a negative signal to the investors, as they compare the rates with other competitor countries.

He suggested the government bring down the corporate tax rates by cutting back on the prevailing tax exemption and reduced tax rate facility.

"It is true that the government is not getting corporate tax from the major sectors at the imposed rates of tax due to various exemptions. But a section of influential people with strong lobby are enjoying the benefit alone."

Investors usually estimate their investment cost on the applicable rates of corporate tax, not on the effective rates, he added.

The Institute of Chartered Accountants of Bangladesh (ICAB) Council Member Snehashish Barua FCA, agreed that a number of sectors, including power, are enjoying large-scale tax exemption.

"The NBR will be able to reduce the corporate tax rates, if it prepares a comprehensive plan to curtail the existing tax exemptions in phases," he opined.

Towfiqul Islam Khan, Senior Research Fellow of the Center for Policy Dialogue (CPD), however, said the country's corporate tax rates are not as high as claimed by the industry insiders.

"Under the current situation, when revenue mobilisation is an utmost priority, it will not be wise for the NBR to cut the existing corporate tax rates."

There is no international evidence to show that private investment has increased only due to cut in corporate tax rates, he further said.

"The NBR earlier reduced tax rates for the banks and other FIs, although those were making hefty profits."

Operating profit of each bank is no less than Tk 1.0 billion, he added.

He also advised the NBR to cut the existing tax exemptions gradually before reducing the corporate tax rates.

Currently, corporate tax rate in India is 30 per cent for the local companies having above Rs 2.50 billion turnover, while it is 25 per cent for the same having a turnover below the ceiling.

For the foreign companies, corporate tax rate is 40 per cent, while tax rate for royalty income is 50 per cent.

In Sri Lanka, corporate tax rate is 28 per cent; in Pakistan 30 per cent; in China 25 per cent; and in the Philippines 30 per cent.

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