This year, the budget comes at a time when Bangladesh, indeed, the world is facing a crisis of such magnitude that the world has never seen in the past. The pandemic has caused havoc among the industries as well as individuals. The government of Bangladesh should be commended for working out the budget amid such challenges. Hence, there was a lot of expectations about what the budget will offer in terms of fiscal benefits. Unfortunately, the analysis below will indicate that the proposals have fallen short of expectation.
IMPACT OF TAX MEASURES ON INDIVIDUALS: The Finance Bill that has just been placed in Parliament has proposed reduction in personal tax. I have made an analysis of the impact of the changes at various levels of income. The results indicate that people having a monthly income of Tk 400,000 or below will get monthly benefit ranging from Tk 200 to Tk 1000 .On the other hand, the reduction jumps when the income level crosses Tk 400,000 per month. For every increase in income of Tk 10,000 per month, the savings per month goes up by Tk 500 which is actually the 5% reduction at the top slab from 30% to 25% and clearly indicates that the change has really benefited the high income individuals at the expense of the low and middle income earners.
Payments from pension and gratuity funds, other than Government or an approved pension fund, is proposed to be taxable. The proposals are unjust on two counts. In our country, an employee is not entitled to any unemployment benefits. The terminal benefits are normally provident fund, gratuity and pension. At the same time, under taxation principles, terminal benefits are capital receipts and not a revenue receipt and hence not taxable.
On line rebate of Tk 2,000 has been proposed to encourage online filing of tax return. This is a good initiative by the government to encourage tax filing.
The Budget has proposed major increase in advance tax on motor cars. This is inequitable considering the fact that given the poor public transport system, cars are more of a necessity than a luxury specially cars with capacities not exceeding 2000 cc.
The provisions to whiten black money may result in an increase in government revenue and will positively impact the stock market and real estate market. However, these are ethically unsound since it rewards the dishonest taxpayers at the cost of honest taxpayers.
Regarding the proposal to increase excise duty at different levels at different slabs on bank accounts, it will discourage savers to keep cash in the bank accounts and comes at a time when bank deposit rates are at a historical low.
Increasing the supplementary duty of the services provided through mobile phone SIM/RIM cards will adversely impact consumers. For every Tk 100 worth of service, a customer will end up paying taxes of Tk 33.25 against Tk 27.5. Use of mobile phone is now a necessity rather than a luxury and comes at a time when disposable income of households have dropped sharply.
Reduction of advance income tax, tax deduction at source, customs duty or supplementary duty may reduce the price of certain food and other products such as garlic, sugar, rice, atta, potato, onion, baking products, potato crackers, motor car lubricants, locally-assembled mobile phones, solar battery and mustard oil
On the other hand, increase in customs duty of garlic, sugar and honey may increase costs. At the same time, increase in taxes and duties is expected to increase price of furniture, repair and maintenance service, cigarettes, biris, ceramic sink and basins, bathroom fittings and fixtures made of ceramic, refrigerator, freezer and equivalent , rentals of chartered flights or helicopters, services rendered by BRTA for car and jeep registration and related services and locally manufactured cosmetics.
CORPORATE SECTOR: Tax rate for non-publicly traded company has been reduced from 35% t0 32.5%. This will give some relief but it is uncertain whether the full benefit will be available since some other disallowance of business expense as explained below will lead to increase in taxes.
Threshold for computing disallowance on account of expenditure on overseas travelling to be decreased from the existing rate of 1.25% to 0.50% of disclosed turnover. Promotional expenses exceeding 0.50% of disclosed business turnover to be disallowed. This will have a major impact on all corporate houses since promotion expense is vital to increase sales.
Both the proposal will significantly increase the effective corporate tax rate.
Currently, advance income tax is being deducted at source at the rate of 3% on all imports. If the impact of assessment value is considered, the effective advance income tax comes to around 4%. In addition, tax is being deducted at source under Section 52 and 53 on practically all purchases of goods and service and source tax on sale to customer is considered, an additional 5% is imposed. Hence, the effective advance tax rate would be around 9%. This is now the minimum tax under Section 82C for cement, steel industry and ferroalloy producers, that is highly discriminatory.
In the current intensely competitive situation, the minimum tax of around 9% cannot be adjusted against profits. As a result, all these companies are making losses this year and the situation is likely to worsen in the coming years.
The budget has proposed reduction of advance tax on VAT at import stage from 5.0 per cent to 4.0 per cent. Although this is a good move, this fiscal measure is hurting the manufacturing industry by straining its cash flows and should be removed altogether.
Introduction of withholding tax at 2.0 per cent in respect of local letter of credit or any other financing agreement for purchase or procurement of specified commodities (such as agricultural items, computer, computer accessories, jute, cotton, fruits, etc.). This will increase the cost of doing business.
Reduction of taxes and duties will benefit the readymade garments industry, textile industry, steel industry, fish, poultry and rhe dairy sector, poultry feed industry, soybean oil cake and soy protein concentrate, electrical transformer manufacturer, import and local manufacture of agricultural machinery, tannery industry, hair oil industry, compressor industry, paper mills, petroleum products processing or blending industry, local shipbuilding industry. manufacturing of potato flakes, manufacturing maize starch, local mobile manufacturers, pharmaceutical industry, solar battery manufactures that are partner organizations of Infrastructure Development Company Limited, automobiles, refrigerators, freezers, air conditioners, air ambulance services, local manufacture and supply of mustard oil, local manufacturing of router, loaded PCB and Printed Circuit Board, plastic board and sheet importer.
On the other hand, increase in taxes and duties will hurt the steel industry, cigarette and biri industry, Telecom industry, footwear industry, furniture industry, repair and maintenance service sectors, air-conditioned steamer/ launch service, ceramic industry, importers of refrigerator, freezer and equivalent products, rentals of chartered flights or helicopters locally manufactured cosmetics industry.
CONCLUSION: Before I conclude, I will again draw the attention to the highly controversial Section 82C of the Income Tax Act where almost all advance tax or tax deducted at source becomes the minimum tax. This provision and, indeed, the widening of scope of advance tax and tax deducted at source is to cover the failure of tax administration to check tax evasion. The implication of this section is that a business cannot make any loss! What will be the scenario this year with the Covid-19 fallout? As a result, tax dodgers are evading tax at the cost of compliant taxpayers. Every year, we hear of measures being taken to rein in tax evaders but at the end of the day, the honest tax payers continue to bleed and pay for the tax evasion of the tax-dodgers. This situation needs to change to ensure that businesses remain viable.
The writer is Chief Advisor of Crown Cement Group, Chairman of GSK Bangladesh
Independent Director of Marico BD, Berger Paints BD, Singer BD, Community Bank and Viyellatex.