Preferential tax facility sought for SMEs

• There are around 78 lakh MSME industries in Bangladesh
• About 2.1 crore manpower employed in the sector
• SME sector contribution to the economy is 28%
• Govt aims to increase it to 32% by 2024

The SME Foundation has sought separate tax, duty and tariff structures for small and medium enterprises (SMEs) in the upcoming budget for the development of small industries in the country.

To this end, the state-run non-profit organisation has sent a 56-point recommendation to the National Board of Revenue (NBR), including the proposal to provide preferential tax regimes or clusters for SMEs.

According to the SME Foundation, preferential tax regimes are special financial facilities that provide lower tax rates and easier taxation to a particular group than the mainstream tax regime.

The proposal has been prepared with the aim of creating a supportive environment for SMEs and also increasing the revenue of the government, Md Mafizur Rahman, managing director of SME Foundation, told The Business Standard.

There are around 78 lakh micro, small and medium (MSME) industries in the country and about 2.1 crore manpower directly and indirectly employed in the sector, he said.

"SME entrepreneurs should be facilitated as most of the backward linkage industries in the country are small and medium scale," he added.

"The development of this sector will accelerate the attainment of Sustainable Development Goals by 2030 and the creation of a developed Bangladesh by 2041," Mafizur Rahman further said.

Highlights of the proposal

The proposal includes a total of 56 recommendations, including 22 on income tax, 15 on VAT and 19 on customs.

The SME Foundation proposes that the revenue board issue a statutory regulatory order (SRO) with a logical definition of cottage, micro, small and medium industries (CMSME).

Currently, entrepreneurs of cottage, micro, small and medium industries (CMSME) get loans as per the definition mentioned in the National Industrial Policy-2022.

However, there is no definition of the term in NBR's revenue collection process.

It also suggests the introduction of a small business tax rate for the first time to support micro and small enterprises.

This includes the provision of 12% and 15% corporate income tax for micro and small enterprises respectively based on their annual turnover against the current rate of 22.5%.

Additionally, like the IPO facility prescribed for companies in the capital market's mainboard, a 15% corporate income tax for small-cap companies for listing in SME Board is suggested.

The foundation proposes that the advance income tax on the sale or supply of manufactured goods by micro and small enterprises be brought down to 2% from 7%.

It also recommends an increase in the tax-free threshold and further reduction of the tax rate for the SME sector.

Currently, the tax-free ceiling for the sector is at Tk50 lakhs and Tk70 lakhs for women entrepreneurs. The turnover tax rate is fixed at 4% for up to Tk3 crore.

The proposal further suggests tax exemption for 5-10 years to the entrepreneurs of the informal sector to encourage them to enlist in the "National MSME e-Database" managed by the SME Foundation.

Another point in the proposal recommends the inclusion of a legal provision to exempt VAT on goods sold and stall rent for micro and small enterprises.

The requirement to keep all documents and accounts for the previous five financial years for audit by VAT officials should be reduced to three years, the foundation proposes.

Furthermore, allowing the filing of VAT returns annually for SME entrepreneurs instead of on a monthly basis.

As per existing provisions, VAT returns are required to be filed under any circumstances and a failure to file returns attracts heavy penalties.

SME sector in Bangladesh

The contribution of the industrial sector to the economy of Bangladesh is 37.07%, while it is about 28% for the SME sector.

The government has formulated an SME policy, aimed at increasing the contribution of the SME sector to 32% by 2024.

The SME Foundation says that the SME sector contributes 60% to 70% to the GDP of China, Japan, and South Korea.