Corporate tax on MFS set to go up

The government is likely to hike corporate tax of mobile financial services (MFS) up to 40% from the existing 32.5%.

The MFS providers are going to face such a high tax in line with banks, insurance companies and other financial organisations, sources said.

But those listed on stock exchanges may get a 2.5% exemption, according to finance ministry top officials.

The government may also impose a 15% corporate tax on incomes of private universities, medical, dental, engineering colleges and ICT institutes.

Finance minister AHM Mustafa Kamal will place the tax measures in parliament in his budget speech today.

According to the National Board of Revenue (NBR), if these proposals are endorsed, the size of the formal economy will get bigger, and investment and revenue collection will go up.

Former central bank governor Mohammed Farashuddin said the new tax structure will help the government collect more revenue that it will invest in poverty reduction and other welfare work.

"The tax will be imposed on the MFS providers' high profits. Currently, they are charging customers Tk2 for each Tk100 transaction, which is unjust," he said.

However, Khondokar Shakhawat Ali, sociologist and researcher who has been in the MFS sector since the inception of its journey, said hiking the corporate tax will not be a good policy decision at this time because it will directly affect poor people who mainly use MFS for small transactions and pay VAT and income tax with each transaction.

He suggested that the authorities reduce transaction charges instead.

Industry insiders also sense a hard time ahead if the corporate tax increases further.

bKash, the leading MFS provider that holds around 80% of the market share, has been incurring losses for the last two consecutive years.

The company registered a loss of Tk62.5 crore and Tk81.4 crore in 2019 and 2020 in a row despite a surge in revenue.

"In such a situation, the sector will face a tough business environment if the tax increases," said a high official at bKash, seeking anonymity.

Tanvir A Mishuk, managing director of Nagad, the second-largest MFS provider, said, "The overall tax structure of MFS is overburdened both from the investor side and the retail level service delivery point of view. And, now at this position, if the corporate tax increases to 40%, it will be a big obstacle to service expansion, which can actually have a negative impact on the overall digitisation process."

He said, "We think it will be difficult to achieve the overall goal of digitalisation if we do not digitise the financial sector. During the ongoing Covid-19 pandemic, customers need to be attracted more to mobile financial services to establish a cashless society – which will play a role in ensuring transparency and accountability in various fields."

On 31 March 2011, Dutch Bangla Bank first introduced a mobile financial service named Rocket to take banking services to the country's huge population.

Later, other banks also started using this modern technology to ease money transactions for rural and marginalised people who cannot easily avail banking services.

As of March, the number of active MFS accounts is 3.46 crore, according to Bangladesh Bank data.

Currently, there are 15 MFS service providers in the country which have banking services too.

At present, around Tk2,000 crore is transacted a month through MFS providers.

Tax on incomes of private educational institutes

The government is likely to impose a 15% corporate tax on incomes of private universities, medical, dental, engineering college and ICT institutes, according to the finance ministry top officials. 

Earlier, the NBR had imposed the tax at a similar rate through a Statutory Regulatory Order (SRO) on 1 July 2010. 

However, the High Court gave a verdict against this SRO terming it illegal. The NBR also appealed against that verdict at the Appellate Division of the Supreme Court, which is still sub judice, according to the NBR officials.

The government cannot realise any tax from educational institutes through an SRO. It is under the jurisdiction of parliament, NBR officials said, adding, "Now it is a matter of parliament."

The imposition of 15% corporate tax on private educational institutes is supposed to get the go-ahead at a meeting of the cabinet division before it is placed in the Parliament during today's (Thursday) budget session.

Sheikh Kabir Hossain, chairman of the Association of Private Universities of Bangladesh, told The Business Standard that private universities are non-profit organisations. 

The trustees of the universities do not make any profit from their respective institutions as they have invested for the welfare of the country's higher education and to contribute to building skilled and educated manpower.

He termed imposing 15% tax on private universities' incomes illogical. 

"The government allocates a huge amount of money for the education sector to ensure quality education. But imposing tax on private universities is not wise," Kabir said.

MA Mubin Khan, president of the Bangladesh Private Medical College Association and also managing director of International Medical College and Hospital, told TBS that the financiers of private medical colleges invest their money to establish the institutions as charities.

According to the private medical college policy, the government also declared it as non-profit organisations. So, imposing corporate tax on non-profit organisations like private medical colleges is just contradictory to the policy, he said.

There are 106 private universities and 70 private medical colleges which accommodate five lakh students across the country. 

According to the University Grants Commission's annual reports, the private universities' gross income was Tk3,631 crore and they spent Tk3,580 crore in 2019. In 2018, their gross income was Tk3,504 crore and they spent Tk3,359 crore.

Professor Dr Siddiqur Rahman, former director of the Institute of Education and Research at Dhaka University, told TBS that it is true that many private universities and medical colleges are doing business in the name of higher education. But imposing tax on private higher educational institutions is unwise. 

"I assume the government wants to control the private higher educational institutions by imposing taxes. But it is not the right way. The government can put pressure to ensure quality education instead of imposing tax," he said.

"Most private universities and medical colleges admit sub-standard students and sell certificates to increase their income. The government will not be able to tell them anything as they will say, "we are paying tax". This tax will create a scope to provide poor quality higher education," he anticipated.

Dr Manzoor Ahmed, professor emeritus of Brac University, told TBS that the government should provide funds to private higher educational institutions to ensure world standard higher education. 

"I do not know who is giving advice to the government to impose the tax. It will be unfortunate for the country's higher education if the government does it," he added.

Thousands of students from private universities, including medical and engineering colleges, protested the government's decision to impose tax on tuition fees in the budget for FY16. 

Following 44 separate writ petitions filed by nearly two dozen private universities, on 5 September 2016, the High Court declared the government orders that imposed 15% income tax on the private educational institutions illegal and asked the NBR to refund the money collected from the institutions from 2007.

The HC also scrapped the three statutory regulatory orders for tax imposition issued by the government in 2007 and 2010, which imposed 15% income tax on private educational institutions.

Following a government petition, the chamber judge of the Supreme Court on 7 September 2016, stayed part of the High Court verdict that scrapped the government orders imposing 15% income tax on private institutions.

The chamber judge also stayed the HC directive, asking the NBR to refund the money collected as income tax from the institutions from 2007.

On 9 February this year, the Appellate Division of the Supreme Court directed the NBR not to demand or collect any income tax from private universities across the country until further orders.