One year is too short to benefit from tax waivers

The government has provided tax holiday and VAT exemption facilities to several manufacturing subsectors in the current fiscal year to facilitate the growth of local industries. Tax rates have been reduced in many sectors to help industries recover from Covid-induced losses. Bangladesh Chamber of Industries (BCI) President Anwar-ul-Alam Chowdhury sheds light on the effectiveness of these facilities as he speaks to TBS Senior Reporter Abbas Uddin Noyon.

In the budget for the current fiscal year, the government has reduced the corporate tax by 250 basis points to 22.5% for listed companies and 30% for unlisted ones. This is good for our business. But, corporate tax rates are even lower in our competitive countries. Therefore, we recommend that the government bring this tax rate down further.

Another major government initiative in the current budget is to give impetus to the "Made in Bangladesh" campaign.

As part of this, a 20-year tax exemption support has been announced for the automobile industry on the condition that a company must have an investment of at least Tk100 crore in the sector in order to become eligible for the tax benefit. Besides, industries that manufacture various types of home appliances including washing machines, blenders, microwave ovens, electric sewing machines, induction cookers, and kitchen hoods have been provided with a tax exemption facility for 10 years.

In order to create local entrepreneurs, a 10-year tax exemption facility has been announced for agro-based industries, the light engineering industry, and the IT hardware sector. Also, a 10-year tax holiday has been announced on the construction of specialised hospitals outside Dhaka.

Undoubtedly, these are good initiatives. But, it will take some time to get the desired benefit out of them.

The Covid situation improved not so long ago. But, prices of all kinds of raw materials and capital machinery have started to rise on the international market even before the industrial sector could dispel the clouds of the pandemic.

Freight charges have risen 8-10 times over the last two years owing to rising oil prices. A crisis has also arisen over the procurement of raw materials from the global market. In this situation, it is very difficult to get new investments.

Encouragingly, some investors started pouring their money into these industries, which have received special facilities from the National Board of Revenue (NBR), before the outbreak of the novel coronavirus. Many have already taken allotments of land in economic zones, although we do not have any specific data about how much money has been invested or has been planned to be invested.

In the current budget, the NBR has announced a 5% waiver on corporate tax for organisations having 5% or at least 100 of their total employees recruited from the third gender community or people with disabilities.

But, few companies could avail of this facility. This is because if a company has a total of 2,000 employees, it must have at least 100 of them from the third gender, and it is very difficult to find such a huge number of third gender people in our country. The NBR, therefore, should relax this condition.

The government has continued the VAT exemption facility for the electronics sector including manufacturers of mobile phones, refrigerators, and ACs this year as well. This has already yielded positive outcomes in some areas. Once the domestic market of refrigerators, televisions, and ACs was totally import-dependent, but local industries have flourished in recent years and now import dependencies have come down to great extent.

The government has also kept providing VAT exemptions alongside tax breaks to facilitate the expansion of the local mobile phone industry. As a result, about 70% of the local demand for smartphones and 50% for feature phones are now met by local companies, according to industry insiders.

In addition to VAT exemptions, taxes have also been reduced for the local shipbuilding industry, which has resulted in an increase in the number of new seafaring vessels.

A special fund has been set up in the budget to finance young entrepreneurs. But, because of a lack of proper policy, it was not possible to utilise this fund. I am proposing to formulate a policy framework for the disbursement of the special fund.

I am also proposing to make the tax system transparent, fast, modern, up-to-date and fully digital in order to motivate everyone to pay taxes.

The applicable rates of VAT range between 5% and 15% on various expenses as applicable under the existing law. These rates need to be brought down to 3% to 10%.

The gross profit of a company is determined depending on the sector it is in, which is not logical. Again, if a company's gross profit drops or it incurs a loss, they are not taken into consideration. The tax authorities do not show any compassion even if the sales are lower than that of the previous year. It takes a certain amount of time for a company to turn profitable after its registration. But the losses the company incurs during this time are not taken into account. I, therefore, propose to consider the issue of the initial costs (pre-establishment cost).

Above all, I think the new budget needs to provide more facilities to local industries considering the rising inflation.