Corporate tax rate changes aim at promoting investments

The fiscal 2024-25 budget has brought some changes to corporate tax rates, offering a 2.5% cut for companies that adopt cashless operations to promote a cashless society.

The changes aim to attract investment and generate employment, a tax expert and National Board of Revenue (NBR) officials told The Business Standard.

They also said that over the last few years, the government has been reducing rates for both publicly listed and non-listed companies.

With this move, noncompliant listed firms and compliant non-listed firms will face the same tax rate of 25% from the next fiscal year, they said.

It means non-listed companies, which currently pay 27.5% corporate tax, will see a 2.5% tax cut if they comply with cashless transaction conditions.

Listed firms with a free float up to 10% will face the corporate tax rate rising from the current 22.5% to 25% if they fail to comply with the condition of cashless transactions.

Acknowledging the issue, the NBR officials said no companies are getting listed solely for tax-cut benefits.

However, business leaders have been demanding a wider tax gap between listed and non-listed firms; otherwise, companies may not be interested in going public.

"Currently, as part of the effort to achieve the country's tax-GDP rate growth target every year, I propose to increase the tax rate for cooperative societies from 15% to 20% while keeping other tax rates fixed as per last financial year," Finance Minister Abul Hassan Mahmood Ali said in his budget speech. 

On the other hand, listed firms with a free float above 10% will see their corporate tax rate drop from the current 22.5% to 20% if they comply with the condition of cashless transactions.

The tax rate for one-person companies will remain at 22.5%, as in the current fiscal year. If they comply with the condition of cashless transactions, they will enjoy a 2.5% reduction.

However, Bangladesh Securities and Exchange Commission Chairman Shibli Rubayat-Ul-Islam said that this move will narrow the tax gap between listed and non-listed firms, which may discourage the listing of new companies.

He emphasised that the difference in the corporate tax rate between listed and unlisted companies should be at least 10%.

"A larger tax gap is essential to incentivize good companies to get listed," said the BSEC chairman.

Snehasish Barua, a partner at Snehasish Mahmud and Co., a leading chartered accountants firm, told TBS, "The government has made a positive move to reduce the tax rate."

He added, "A 10% tax cut over the last few years is a very impressive move despite the challenges in increasing tax realization. It has already been proven that reducing tax rates helps to increase tax realisation."

He further stated that if the government reduces tax rates, it will help prevent money laundering and tax dodging, as some tax haven countries have done by lowering their tax rates.