Doubled source tax to eat up corporate tax-cut benefits: Businesses

The reduction in corporate tax for all export sectors to 12% – the same rate as the readymade garment industry is now enjoying – will not benefit non-RMG exporters much if the source tax on export proceeds doubles, businesses have said.

At a post-budget webinar styled "Fiscal incentives for non-apparel exporters: How much in deed?", organised by The Business Standard yesterday, they have demanded that non-apparel sectors be given the same policy support that the RMG sectors got around two decades ago.

If facilities given to RMG 20 years ago are given to other exporters now, sectors such as leather goods, jute and jute goods, agriculture, frozen food, pharmaceuticals, ICT, light engineering, and plastics will also brighten the "Made in Bangladesh" brand in the global market, they observed.

Rizwan-ur Rahman, president of the Dhaka Chamber of Commerce and Industry, RN Paul, managing director of Pran-RFL Group, and Dilip Kajuri, deputy managing director of Apex Footwear Limited took part in the discussion conducted by TBS Chief Reporter Morshed Noman.

Rizwan said the corporate tax cut would not yield any benefit at this moment. "Reducing the corporate tax might leave some positive impact on non-RMGs in the long run, but they will not be benefited right now due to the non-adjustment of tax deducted at the source," he said.

Equal benefits for all are not confined to corporate tax, he said, adding that there are various areas including bond facilities and back-to-back LC facilities where equality needs to be established. 

RMG exporters get the bond facility for three years, but those in the tannery industry get the facility for one year and many other sectors do not get it at all, Rizwan mentioned. 

Besides, the RMG sector enjoys back-to-back LC facilities, but others do not. RMG exporters also get concessions in various other areas such as advance trade VAT (ATV) on the import of raw materials, and VAT, but this is not the case with others, he added.

Rizwan Rahman said non-RMG sectors need to be given long-term benefits. "The RMG sector has been getting various fiscal benefits including tax exemption and financial incentives since the birth of the country. Enjoying these long-term benefits, the sector has now made 'Made in Bangladesh' known all over the world," he added.

"If we want to make another success story like RMG, we have to provide such facilities there as well. If we nurse the sectors such footwear, jute, agriculture and ICT, they also will be able to bring in $40-50 billion in export income."

Pran-RFL Group Managing Director RN Paul said Pran-RFL has set an example that other products besides garments can also do well in the export market. 

"We are doing well by exporting bicycles, furniture, and food products. But the problem is tax at source. Huge amount of capital gets stuck during the import of raw materials. This makes doing business difficult.

"Now a 1% source tax has now been levied during the export of goods. Even if the exporters incur losses, the National Board of Revenue (NBR) will not return it. As a result, the reduction in the corporate tax rate will not benefit the exporters."

He called for providing the potential sectors with concessions on various taxes including ATV and source tax in order to diversify the export basket. 

"This is because these taxes have to be paid before doing business. As money gets stuck it is not possible to do business. Corporate tax cuts will contribute to the development of new sectors if a conducive business environment is created first," he explained.

Dilip Kajuri also said no company in the tannery sector will get the benefit of corporate tax exemption.

"At present, we have to spend 70% of our total profits to pay source tax at the rate of 0.5%. If the tax rate doubles, we will not be left with any profit. As a result, giving or not giving corporate tax discounts is not news for us. No footwear factory will benefit from this."

The RMG sector does not have to go abroad for marketing as global companies buy clothes from the country through their buying houses, Kajuri said, adding, "But, other sectors have to look for buyers. They have to spend 5% to 7% of their total exports on marketing commissions. But, a 20% tax is levied on this expense as well."

Asked what sectors other than RMG the country can now focus on at the moment for export diversification, Rizwan Rahman said, "The Monitoring and Implementation Committee of Export Diversification was set up in March 2020 on the instructions of the Prime Minister. Since then, we have selected leather goods, jute, agriculture, light engineering, ICT, pharmaceutical, and plastics as some potential sectors."

A target has been set to raise export earnings from the ICT sector to $5 billion by 2025, he said.

"There is a huge potential in the agricultural sector. Machinery should be made available here. Incentives should be given to capital machinery. Warehouses need to be built."

Speaking about the leather sector, Kajuri said the highest attention needs to be given in availing the certificate of the Leather Working Group. Secondly, the corporate tax has to be reduced to 0.25%.

Rizwan Rahman said, the country will no longer enjoy the benefit of the waiver of Trade-Related Aspects of Intellectual Property Rights (TRIPs) in patent rights in genetic medicine after 2030. "Therefore, we have to attain self-sufficiency in active pharmaceutical ingredients (APIs) quickly."

Rizwan Rahman said before giving benefits to a sector, its backward linkage has to be created.

"We need backward linkage wherever we want to be successful in our local market or export market. With easy access to raw materials, the industry will be able to operate smoothly."