Tax body urges closing public-pvt firms’ gap

A tax expenditure committee has recommended narrowing the tax gap between publicly traded and private limited companies.

It also proposes phasing out tax exemptions on capital gains for individual investors in the capital market.

Share capital gains are the largest source of the country's tax expenditure (TE), accounting for an estimated 13.47 per cent of the total tax expenditure. 

The committee recommended scrapping the tax rebate on investments in secondary shares. Currently, tax rebates are allowed for investments in both primary and secondary shares.

The report says that total direct tax TE -- in the form of exemptions, waivers, rebates and other methods -- amounted to Tk 1.25 trillion in Fiscal Year 2020-21.

The report was prepared by the tax expenditure committee, led by Dr Lutfunnahar Begum, additional commissioner of taxes in the National Board of Revenue's (NBR) direct tax wing.

It cited examples from neighbouring countries like India, Indonesia and Vietnam to support its points.

Currently, publicly traded companies enjoy a reduced corporate tax rate of 22.5 per cent to 25 per cent, while private company tax rates range from 27.5 per cent to 45 per cent.

However, India, for example, does not differentiate in tax rates between listed and non-listed companies.

In the report, the committee recommended continuing the tax exemption on remittances.

For agro-businesses, it recommended introducing a new tax tier with a higher rate for those earning hefty profits. Currently, the maximum tax rate on agribusinesses is 15 per cent.

For microfinance institutions, the report recommends a reduced tax rate to 5 per cent or imposing taxes only after a certain income threshold.

It suggests maintaining the current tax rate for educational institutions and continuing tax benefits for economic zones and high-tech companies. The committee suggested introducing a sunset clause or a reduced tax rate (between 10 per cent and 15 per cent or a capped rate) for IT-enabled services.

They proposed considering the applicability of inheritance taxes in the medium to long term.

Amid a tight monetary policy, the central bank plans to issue special bonds to clear outstanding dues to fertiliser importers and independent power producers (IPPs).

The report says the revenue board needs to provide specific policy guidelines on the tax implications of these bonds in the upcoming FY2024-25 budget.

The report recommends revisiting and restructuring the existing TE provisions for several bonds. "The applicability of tax on different types of bonds should be propagated towards field level implementation with effective monitoring to avoid any confusion."

The report suggests considering a withholding tax with final tax on interest earned on certain bonds in the medium to long term. The examples include Wage Earners Development Bonds, US Dollar investment bonds and Euro-denominated bonds. Currently, a 10 per cent withholding tax on savings certificate interest is the final tax for individual taxpayers. Besides, investments up to Tk 0.5 million in savings certificates are eligible for a tax rebate.

Taxmen recommended reviewing the tax benefit for investors in savings certificates to determine if it creates an uneven advantage for specific income groups or industries.

"The final settlement of withholding tax tends to favour the higher income groups or the individuals with higher investment in saving certificates. The final settlement of withholding tax should be revisited and a slab rate may be introduced instead," it said.

The current direct tax exemption for ICT sector companies is due to expire on June 30, 2024.

Citing experiences from India and Vietnam, the committee recommended policy measures to define IT-enabled services and clarify TE provisions in the IT sector. It also called for effective communication and monitoring for successful implementation at the field level.

The report calls for clarification in the law regarding terms like e-learning, freelancing and software customisation to avoid confusion and misinterpretation.

The report recommends maintaining the current 20 per cent corporate income tax rate on dividends but suggests reviewing tax benefits on salary income to prevent them from disproportionately benefiting specific groups.

The committee proposed revisiting existing tax amnesty rates for undisclosed income holders, considering its upward revision. They also suggested a gradual phasing out of tax exemptions for the power and energy sector in the long term.

This report was prepared by the National Board of Revenue's Tax Expenditure Team under the guidance of NBR Chairman Abu Hena Md. Rahmatul Muneem, also a senior secretary at the Internal Resources Division (IRD).

Led by Dr Lutfunnahar Begum with members Md Mohidul Islam Chowdhury, Bapan Chandra Das, Animesh Chandra Das, H M Shahriar Hassan, Md Omar Faruq Khan, AKM Mainuddin, Md Nawajul Islam Shovan, Tithi Sikdar, Shaila Aziz, and Imam Tauhid Hasan Shakil, the team was supervised by Dr Sams Uddin Ahmed.

The Review Team was led by Dr Lutfunnahar Begum, comprising members Md Mohidul Islam Chowdhury, Bapan Chandra Das, Md Anamul Kabir, Md Hasanur Rahman, Animesh Chandra Das, HM Shahriar Hassan, Tithi Sikder and Shaila Azeez; and was supervised by AKM Badiul Alam.

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