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For the last three decades there have been frequent demands from the business community for reducing the rate of corporate tax, particularly from the protagonists of the capital market. Also there is the demand that the rate of corporate tax for listed companies should be less than that of unlisted companies in order to encourage the companies to go public. The government responded to their demands from time to time. The latest situation is as follows: rate of corporate tax for listed companies stands at 25 per cent as against 35 per cent for non-listed ones. In so far as banks, insurance and financial institutions are concerned, the rate is 37.5 per cent and 40 per cent respectively.
Usually it is argued that in developed countries the rate of corporate is far less which has helped develop their economies. Let us discuss the situation of European countries. In Germany, the rate of corporate tax is 15 per cent. Counting both the solidarity surcharge (5.5 pc. of corporate tax) and trade tax (averaging 14 per cent), the corporate tax stands just below 30 per cent. Corporation tax is imposed, apart from companies, on co-operatives, association and foundations. Companies of Germany are to pay 19.43 per cent as social security tax. With this heavy taxation Germany maintains comprehensive social security programmes. In the UK, corporate tax is 19 per cent. But the companies are to pay 13.80 per cent as social security tax. In France, the rate of corporate tax is as high as 33.30 per cent. Social security rate for companies is 14.20 per cent. The social security rate in France is a tax related with labour income charged on both companies and employees. Revenues from the social security rate are an important source of income for the government of France because they help to pay for many social programmes including welfare, health care and many other benefits. It is true that in most other European countries corporate tax rate varies between 10 to 20 per cent. But these countries also realise social security tax of almost similar amount.
Though these countries are known as capitalist countries, they are welfare states. In running the welfare, the government needs money, so it imposes tax and is tough in realising too. In the USA, it is a common saying: tax and death, you can not avoid. Tax is either reduced or exempted absolutely with a view to giving incentives to the investors. They will enjoy the incentive, invest and earn. In return, they are also to pay tax in whatever form the government imposes. In Bangladesh there has been sharp reduction of the rate of corporate tax from 40-45 per cent to 25 per cent.
To what extent businesses have availed this opportunity is yet to be assessed. Globally, there has been increase in wealth, but the earning has not been taxed accordingly. As a result, the rich-poor divide has risen sharply. In the book Great Divide authored by the Nobel prize winning economist Joseph Stiglitz, it has been mentioned that in the USA there are citizens who face difficulties in meeting the high educational expenses of their wards. But there are also citizens who comfortably change the model of his personal aircrafts whenever they wish. Thomas Piketty in his book Capital in the Twenty First Century has referred to global tax system as an utopian concept. Almost all developing countries have very poor social security system for the have-nots of their countries.
The governments of these countries feel complacent showing the rise of GDP and per capital income. But in spite of spectacular rise of per capital income a beggar remains a beggar and nothing is added to his lot. Free market economy has devised a mechanism where the rich become richer and the poor poorer. In Bangladesh, the income difference between the richest five per cent and the poorest five per cent has increased from 32 times in 2010 to 121 times in 2016. There is no denying the fact that Bangladesh is economically developing and this has been globally recognised and appreciated. But simultaneously, the country has been trapped in the macabre rich-poor divide. Our social safety nets are inadequate. So we shall have to think over the matter seriously. The taxation system is to be reviewed. Taxation should not and can not be a tool for torture. But at the same time it cannot be a matter of indulgence where a few people will enjoy immense benefits under the pretext of liberal market economy.