19 sectors may see cuts in AIT, source tax

Highlights:

• Govt may reduce AIT, source tax rates for at least 19 business categories
• New, young and women entrepreneurs expected to receive tax exemptions
• Major tax incentives likely for electronics, mobile phones, renewables and EVs
• Healthcare sector may receive significant tax breaks
• Businesses outside Dhaka, Ctg may receive favourable depreciation benefits
• Ex-NBR chair says measures could significantly boost investment if implemented properly
• NBR officials describe upcoming budget as most business-, investment-friendly in country's history

To create a more investment-friendly environment and reduce the cost of doing business, the government may lower advance income tax (AIT) at the import stage and source tax rates at the local level for at least 19 categories of businesses.

At the same time, tax exemptions are expected for new, young and women entrepreneurs. Major tax breaks may also be offered to investors in the electronics sector, including mobile phones, as well as renewable energy, electric vehicle imports and local manufacturing.

Significant incentives are also expected for the healthcare sector, according to sources at the National Board of Revenue (NBR).

NBR officials said that the upcoming budget is attempting to address nearly all major obstacles facing businesses and investors, alongside offering tax incentives to encourage investment and economic activity.

Infograph: TBS

Investors and experts have viewed the government's initiatives positively.

According to NBR officials, the withholding tax on export cash incentives may be reduced by half, from the existing 10% to 5%, to encourage exports. Advance income tax on imports of computer equipment and components may be reduced from 5% to 2%. AIT on 22 categories of inputs used in local mobile phone manufacturing may be cut to 1%.

A 10-year tax holiday may be introduced for edible oil producers using locally produced oilseeds.

To promote the recycling industry, the tax on the supply of raw materials for the sector may be reduced from 3% to 1%.

To encourage gold and jewellery traders to come under the tax net, substantial reductions in AIT on gold and ornaments may be offered. The existing tax on imports of such products may be cut from 5% to 0.5%.

Amid the ongoing energy crisis and uncertainty, the existing 5% AIT on imports of electric vehicles and equipment for electric vehicle charging stations may be withdrawn entirely. In addition, the registration fee for electric vehicles, currently as high as Tk2 lakh, may be reduced by half.

The withholding tax on fuel supplies by refineries may be reduced from 1.5% to 1%, while the rate on mobile network services may fall from 12% to 10%. Tax on packaging materials may be reduced from 5% to 3%.

Similarly, withholding tax on transport, carrying and vehicle rental services may be reduced from 5% to 2%.

The government is also planning significant relief on imports of industrial raw materials. In this case, the existing 5% AIT may be reduced to 4%, while the same reduction may apply to local supplies. The withholding tax on machinery supplied by non-residents may be cut by half from the current 15%. Withholding tax on insurance premiums paid to non-residents may also be reduced by 50%.

Likewise, withholding tax on interest payments for loans sourced offshore may be reduced from 20% to 10%. Although the rate currently stands at 20%, the NBR has been granting exemptions through special orders.

Major tax breaks may also be introduced for renewable energy investments in the upcoming budget. Income earned from such investments may be fully exempt from tax until 2035. Tax rebates may also be available for users of solar-generated electricity.

Several legal barriers to investment may also be removed through the upcoming Finance Bill. A mobile application may be introduced to simplify tax return submissions. Taxpayers may be allowed to submit returns throughout the year, while those filing within the prescribed deadline may receive a tax rebate equal to 10% of the tax payable or Tk5,000, whichever is lower.

Currently, if a company responsible for deducting withholding tax fails to do so, the entire related expenditure may be disallowed and treated as a penalty. The new proposal is expected to significantly reduce this burden.

The allowable expense limits for companies may also be increased, helping reduce the overall cost of doing business.

Time limits may be set for resolving revenue-related cases more quickly. Conditions for alternative dispute resolution may be relaxed to make the process faster and easier. For the first time, a refund mechanism may be introduced for excess taxes deducted from businesses and other taxpayers.

The minimum tax system is also expected to be abolished, meaning excess taxes deducted would be refunded.

Experts say that if these initiatives are implemented properly, the effective tax rate will decline. Investors argue that although the government has reduced corporate tax rates over the past several years, the effective tax burden has actually increased because of various conditions and complex tax structures.

Dr Muhammad Abdul Mazid, former chairman of the NBR, told TBS, "If the proposed reductions in AIT and withholding taxes, along with the removal of other business barriers, are properly reflected in the budget and implemented on the ground, they will provide significant support for business and investment."

However, he cautioned that if field-level activities of NBR officials do not align with the government's policy direction, the expected benefits of these initiatives may not be realised.

NBR officials say the upcoming budget will be the most business- and investment-friendly budget in the country's history.

Speaking on condition of anonymity, a senior NBR official said, "The scale of tax concessions and business facilitation measures being offered in this budget is unprecedented. If businesses are not satisfied with these measures, it will be difficult to satisfy them with anything else."

Initiatives for young and women entrepreneurs

Income earned by freelancers and content creators may be fully exempt from tax.

Annual turnover of up to Tk50 lakh for small and medium enterprises (SMEs) may be exempt from tax. For women entrepreneurs, the tax-free turnover threshold may be increased to Tk70 lakh.

Startups, innovation ventures and technology-based businesses may receive tax exemptions for nine years.

In addition, businesses and industries located outside Dhaka and Chattogram may receive favourable depreciation treatment, resulting in lower tax liabilities.