SMEs demand withdrawal of 7% tax deduction at source

Small and medium enterprise (SME) entrepreneurs have sought withdrawal of the existing 7% deduction of income tax at source (TDS) on the sale of their backward linkage products to encourage big companies to purchase those from SMEs.

The SME Foundation, in its proposal for the upcoming budget for the fiscal year 2023-24, said that the 7% advance income tax deduction levied on the sale of SMEs products is hampering the development of cottage, small and medium industries, and creating a negative impact on the country's rapid industrialisation.

Besides, the Bangladesh Plastic Goods Manufacturers and Exporters Association has written to the NBR seeking exemption from the 7% TDS on B2B (business-to-business) sales of plastic sector products.

In the letter sent to the NBR, the association said that at present, big industrial companies are more inclined towards building factories for the production of backward linkage products to avoid the advance deduction of income tax, which is an ominous sign for the existence of backward linkage enterprises in the country's SME sector.

Dr Md Mafizur Rahman, managing director of the SME Foundation, told The Business Standard, "SMEs will not be able to survive if the big industries start manufacturing the products that SMEs make." Big companies should leave small products to SME entrepreneurs, he felt. 

"If necessary, they [big companies] can monitor it," Dr Mafizur suggested.

SMEs entrepreneurs said that they are struggling hard for survival as many big companies have stepped back from purchasing packaging products from entrepreneurs to avoid the tax deduction.  

Xclusive Can Ltd, a can producing enterprise, used to supply plastic cans, ice cream boxes, mobil oil cans, medicine and food containers, and various sizes of tin containers to various brands such as Berger, Asian, Nippon, Dulux, Elite in paints, Savoy, Polar, Kwality and Lovello in ice-cream, Radiant, Popular and ACI Pharma in pharmaceuticals, and Aarong and Milk Vita in dairy sector.  

"Due to the obligation to deduct 7% advance income tax (TDS) on the sale of products, large industrial companies have lost interest in purchasing products from us. Instead, they have started manufacturing the products on their own. As a result, they are relieved from paying 7% TDS, and also making the price of packaging products affordable through the tax exemption," Syed Nasir, managing director of Xclusive Can Ltd, told TBS.

Currently, brands like Berger, Parachute and Rupchanda are producing their own packaging products, Nasir informed, stressing that in order to save SME entrepreneurs, manufacturers are required to be exempted from 7% advance income tax deduction at the business-to-business (B2B) sales.

However, the FBCCI, in its proposal for the upcoming national budget, has proposed to the NBR to keep the suppliers of printing, packaging and binding industries out of the purview of income tax at source to accelerate the development of the SME industry.

According to the FBCCI, there is provision for tax deduction at source at the rate of 3%-7% on printing, packaging and binding.