Distributive policy

MCCI to reform tax policy

The Metropolitan Chamber of Commerce and Industry (MCCI) made the case for tax policy reform while giving its budget reaction on Thursday, June 9.

“The chamber believes there is ample room to reform tax policy, increase the capacity of tax administration and provide appropriate public services. MCCI has consistently suggested significant structural changes in tax administration so that it can properly proceed with revenue collection,” reads a press release.

“In the existing infrastructure, many high-income eligible organizations remain outside the scope of tax, while individuals/businesses that regularly pay taxes are increasingly burdened with taxes. This must be treated properly,” added the PR.

MCCI congratulated Finance Minister AHM Mustafa Kamal for proposing his 4th budget to parliament under difficult circumstances.

The chamber advised the government to adhere to proper and effective financial management to limit the expenditure of financing government projects to control the budget deficit.

MCCI called for government action to keep energy, food and fertilizer prices under control in the coming fiscal year.

“The government should not hesitate to increase the deficit if necessary for essential spending, injecting funds into the economy and increasing aggregate domestic demand. It must look beyond the banking sector to finance this deficit” , says the press release.

The MCCI urged the authorities to explore the possibility of low-cost international financing and to tighten financial management by stopping unnecessary overspending, waste and other leakage of funds that will lead to significant savings.

To ensure this, resources should be allocated to government agencies tasked with monitoring and evaluating public spending and project execution, the chamber proposed.

MCCI thanked the government for focusing on controlling inflation, agriculture and overall food security, human resource development including health, education and skills development, stimulating domestic investment, increasing exports and promoting export diversification, job creation and rural development. .

MCCI believes that Bangladesh can become an export powerhouse by improving its business competitiveness and trade regime. He said that Bangladesh should put adequate and significant emphasis on export diversification in terms of products and markets and bring about sustainable reform measures in export facilitation, including technological upgrading, infrastructure development and skills and institutional strengthening as a priority program to boost exports/

“For technology upgrading, special low-cost funds should be established in accordance with the 4RI and the 8th Five-Year Plan for export-oriented industries to improve their capacity and efficiency.”

“The size of the Export Development Fund (EDF) is to be increased by at least $10 billion from $7.5 billion and should be accessible to all exporters,” the press release said.

Necessary negotiations can be conducted by the government with development partners such as IDA, AfDB, IFC, as proposed by MCCI.

The cost of funds for EDF can be reduced by reducing service charges and profit on investment by Bangladesh Bank (BB) and Authorized Resellers (AD), the chamber added.

In the proposed budget, the proposed allocation of social safety nets is Tk 1,13,576 crore, which is Tk 1,07,614 crore in FY22.

MCCI said it only increased by Tk 5,962 crore which was not enough.

Thus, the chamber proposed a significant increase in social safety nets in the final budget.

MCCI believes that underdeveloped connectivity and infrastructure, weak energy distribution channels and bureaucratic hurdles remain the main impediments to economic growth.

In addition, weak revenue collection (only 69% collected in July-April of FY22) and ADP implementation (only 55.18% could be spent in July-April of FY22). 22) are also sources of concern for the economy.

To ensure macroeconomic stability, the country must take prudent measures in foreign currency spending, given the rising trend of imports and the cascading fallout from the Russian-Ukrainian war, the chamber noted.

“We should control the high subsidies on electricity, gas and fertilizers, otherwise spending as subsidies will increase dramatically,” the press release said.

The MCCI appreciated the reduction in the corporate tax rate of 2.5% (from 22.5% to 20% for listed companies (those that issue shares worth more than 10% of their capital paid up by IPO) and from 30% to 27.5% for non-listed ones).

The MCCI believes that these consecutive reductions over the past three years (7.5% in total) are the right decision to meet the persistent demand of companies to make the corporate tax rate consistent with other competitor countries of the region.

The Chamber also commended the government for lowering withholding tax (TDS) rates for the supply of goods and raising the threshold for perquisites.

However, the Chamber suggests reducing the TDS rate on services such as construction, infrastructure, which generate employment.

MCCI also appreciated the streamlining of income tax rates for export-oriented industries.

The TDS for all export-oriented industries has been increased by 100%, from 0.5% to 1%.

MCCI suggests that this TDS be maintained at the previous level under the current circumstances.

The Chamber considers that the imposition of a 5% withholding tax on the gross terminal operating/ship handling bill, in the context of port operations, similar to that on the stevedoring/ operation of the docks, will increase the cost of doing business. However, MCCI appreciated making research and development expenses deductible.

In line with previous years, the MCCI strongly pleaded for the abolition of the minimum turnover tax in its budgetary reaction. MCCI proposed adjustments to tax thresholds and expressed disappointment that the issue was not addressed in the budget speech.

MCCI is disappointed that personal income tax thresholds are not addressed in the budget. We need to raise and align non-taxable income thresholds, which we have not done yet. MCCI proposes to set the non-taxable income threshold to at least Tk. 500,000,” read Prof. He also suggested keeping a token fund for BNR tax refund amounts.

MCCI appreciated the authorization of a central registration for VAT and the exemption from VAT on the supply of sub-contracted goods between manufacturing units when both benefit from bonded facilities. He also welcomed the reduction of the penalty on submitting the VAT return and the lowering of VAT rates and the minimum value of items on which VAT is applicable in several sectors (such as hospitality and catering, trade in MS products).

However, MCCI was discouraged as no noteworthy suggestions for structural reforms of the VAT law were present in the proposed budget.

The chamber believes that effective automation (including the interface between the Integrated VAT Administration System (IVAS) and the Application Programming Interface (API)) will streamline the VAT system.

The MCCI appreciated the removal of the reference/minimum value for the calculation of customs duties.

The chamber also suggested that tariffs be streamlined so that product prices and inflation can be brought under control. The MCCI welcomed the reduction in import duties for sewage treatment plants (STP) but proposed that this same facility be extended to effluent treatment plants (ETP).

The MCCI also appreciated the budget provision for a study on central bank digital currency as well as exploring ways to introduce digital banks.

“We would also like to see crypto assets allowed for investments that will create thousands of jobs in the country,” the chamber said.

The MCCI has expressed deep concerns about the indiscriminate possibility of laundering black money by paying a certain amount of tax.

“In the past, we have seen such opportunities yield few results while needlessly raising questions about the probity of our financial and accounting practices. Cost-benefit analysis will show higher cost with almost zero benefit.”

“This will seriously discourage docile taxpayers, who will see this as penalizing,” MCCI said.

The CMCI believes that there should be an interim evaluation of the budget every three (3) months.

Finance Minister AHM Mustafa Kamal placed the national budget of Tk 6,78,064 crore for FY23 in Jatiya Sangsad on top priority of protecting marginal people from inflation fueled by the Russian-Ukrainian conflict.