NBR eyes business-friendly reforms to spark investment

Highlights:

• NBR plans reforms to boost investment and ease taxation
• Cash transaction limits may be linked to company turnover
• Requirement to show tax return proof may be relaxed
• Customs must accept declared import values to prevent arbitrariness
• Minimum tax payments could be carried forward to future
• Business leaders praise reforms as investor-friendly and forward-thinking

As Bangladesh gears up for its next national budget, the National Board of Revenue (NBR) is actively exploring a comprehensive suite of reforms poised not only to dismantle long-standing transaction, tax, and customs-related impediments for businesses but also to catalyse fresh investment inflows.

The proposed changes include a relaxation of the existing limits on cash transactions for businesses and the potential elimination of the requirement to furnish proof of submission of tax return (PSR) in up to eight specific scenarios, according to NBR sources.

Another significant proposal under consideration is the curbing of discretionary authority wielded by customs officials in the valuation of imported goods. If endorsed, customs will be mandated to accept the value declared by importers, thereby mitigating the risk of arbitrary assessments – a persistent grievance voiced by the business community.

In a move aimed at alleviating the tax burden, businesses may gain the ability to carry forward any surplus payments made under the minimum tax provision for future fiscal adjustments. This would empower them to offset minimum taxes paid during periods of unprofitability or low profitability against future earnings.

Speaking on condition of anonymity, several high-ranking NBR officials involved in the budgetary process corroborated the proposed revisions, stating that these measures are designed to streamline tax administration, enhance transparency, and cultivate a more conducive environment for business operations.

"Some of these obstacles – particularly those pertaining to import-export – have been protracted issues raised repeatedly by businesses. This time, we are committed to forging genuine solutions," one official affirmed.

"Preliminary discussions with the finance adviser have reportedly yielded positive feedback. The proposals are anticipated to be formally submitted either today or tomorrow. Upon approval, they may be enacted through a presidential ordinance in June," the official added.

Experts and business leaders have lauded these prospective changes as a proactive stride towards attracting investment, underscoring the interim government's apparent focus on nurturing a more favourable business climate by addressing critical tax and regulatory bottlenecks.

"The proposed measures would undoubtedly transmit a positive signal regarding the improvement of the ease of doing business, which, in turn, would incentivise investment," commented Syed Md Aminul Karim, a former NBR member (income tax policy), welcoming the shift towards a more business- and taxpayer-centric approach.

Zaved Akhter, president of the Foreign Investors' Chamber of Commerce and Industry (FICCI), stated that the trade body appreciates the progressive and forward-thinking adjustments in the NBR's taxation and customs policies.

Easing cash transaction constraints

In Bangladesh, companies are currently permitted to conduct cash transactions up to Tk36 lakh annually to qualify for a 25% corporate tax rate. Exceeding this threshold triggers an additional 2.5% tax – a policy implemented to foster transparency and encourage a transition towards a cashless economy.

However, businesses contend that this regulation is impractical, given that numerous transactions still necessitate cash, particularly for large enterprises with multi-crore turnovers. Both domestic and international investors point out that this condition effectively compels the majority of companies to bear the extra 2.5% tax burden.

Furthermore, companies are prohibited from disbursing employee salaries or transportation expenses in cash, and cannot spend more than Tk50,000 in cash on raw materials. Any payment exceeding this limit is disallowed for tax purposes and subjected to the standard tax rate. Tax experts and business leaders have long voiced criticism of these inflexible restrictions.

NBR sources suggest that the forthcoming budget may recalibrate the cash transaction ceiling by linking it to a company's annual turnover – for instance, permitting cash transactions up to 10% of total revenue.

"Imposing a uniform annual cash spending limit of Tk36 lakh on all companies – irrespective of their size – and mandating newly exempted or reduced-rated businesses and ITES firms to exclusively utilise banking channels is unrealistic in an economy that still relies heavily on cash," asserted Snehasis Barua, a prominent tax expert.

"Introducing a four-year transitional period before making digital transactions mandatory would represent a fairer solution and align more closely with international best practices," he elaborated to TBS.

Foreign investors have consistently advocated for reforms in the stipulations governing cash transaction limits, the PSR (proof of submission of tax return) requirement, and customs valuation procedures.

Speaking to TBS, FICCI President Zaved Akhter remarked, "While we acknowledge that promoting cashless transactions is a step in the right direction, the necessary infrastructure is not yet fully developed. A phased implementation would facilitate a smoother adoption process."

"We are hopeful that the NBR will deliver a future-oriented, investor-friendly revenue policy – one that effectively plugs revenue leakages while ensuring a competitive tax regime for the nation," added Akhter, who also serves as the managing director of Unilever Bangladesh Limited, a leading fast-moving consumer goods (FMCG) company.

Potential end to arbitrary customs valuation

Presently, customs authorities do not accord primacy to the declared value of imported goods submitted by importers. Instead, they often assess the goods at a higher value – a practice adopted by the NBR primarily to mitigate the risks of under-invoicing or misdeclaration.

However, this approach artificially inflates the prices of genuinely low-cost imports, consequently driving up market prices and adversely affecting consumers, while paradoxically also creating avenues for money laundering.

Despite persistent calls from businesses and trade bodies for valuation based on actual import prices, the NBR has resisted, citing concerns over potential revenue shortfalls – notwithstanding the existence of regulations that permit assessments based on importer-declared values.

During a pre-budget discussion last month, NBR Chairman Abdur Rahman Khan instructed officials to explore viable methods for assessing consignments based on the actual import values.

A senior official from the NBR's customs wing, speaking to TBS under the condition of anonymity, disclosed, "The NBR will issue directives to all customs houses nationwide to conduct assessments based on the declared value provided by importers, in accordance with existing regulations, commencing from the next fiscal year."

The official further cautioned, "There is a legitimate concern that this shift may lead to a reduction in revenue collection. Moreover, we still lack a robust and effective strategy to prevent fraudulent declarations."

Zaved Akhter emphasised, "Customs valuations should be anchored in the actual transaction price. The era of arbitrary assessments must come to an end. The NBR should secure access to international pricing databases to validate declared prices effectively."

Sources indicate that the High Court has consistently delivered rulings in favour of importers, affirming the validity of valuations based on the declared transaction price.

Snehasish Barua opined, "Strict adherence to well-established valuation rules – appropriately adapted to Bangladesh's specific economic realities – could significantly curtail such disputes. This would alleviate the backlog of customs valuation cases at all judicial levels, streamline trade processes, and reduce legal complexities."

Scope for carrying forward minimum tax payments

Currently, companies are obligated to pay a minimum tax ranging from 0.6% to 5% of their annual turnover, contingent upon their specific business sector. This levy is non-refundable. Consequently, even in loss-making years, it inflates the effective tax rate for companies with marginal profits.

At present, listed companies face a corporate tax rate ranging from 20% to 22.5%, while non-listed companies are subject to a rate of 27.5%. For mobile phone and cigarette companies, the rate exceeds 40%.

However, business leaders have long argued that while the standard corporate tax rate in Bangladesh stands at 27.5%, the inability to adjust the minimum tax and advance income tax often pushes the effective tax burden to 50% or even higher. For firms operating at a loss, the entire minimum tax erodes their capital base, a practice that deviates from global norms.

According to NBR officials, the upcoming budget is likely to incorporate a provision allowing companies to carry forward any excess amounts paid as advance tax or minimum tax, in instances where these payments surpass their actual profits, for adjustment against future taxable income.

Zaved Akhter noted that the high incidence of tax for non-resident companies acts as a deterrent to foreign direct investment (FDI). Therefore, FICCI advocates for a gradual reduction in tax deducted at source (TDS) and minimum tax, striking a balance between domestic revenue collection and the overall cost of doing business in the country.