Taxation changes, tough compliance

Cos fear biz cost escalation

Officials say it's for plugging corporate tax evasion

| Updated: June 28, 2022 15:23:12

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Corporates fear escalation of cost of doing business due to umpteen changes in tax measures and compliance strangleholds in the proposed budget, and plead for a rethink.

Changes in definition of supply of goods, imposition of heavy penalty for non-compliance, cap on cash transactions and slapping burden of ensuring tax compliance on corporate taxpayers make businesses worry about.

A number of top corporate taxpayers suggest go-slow policy in imposing such compliance requirements and cash-less fiscal measures considering the current business-transaction context of Bangladesh vis-à-vis global situation.

"Such draconian measures may lead companies to find means to evade tax by having separate undisclosed records of cash transactions," says Chairman of Unilever consumer care and chief adviser of Crown Cement Group Masud Khan.

"We are not against the move but businesses need time to get familiar with the recorded transaction in all sectors," says Shekhar Ranjan Kar, general manager (F&A) and company secretary of BSRM.

A change in the definition on supply of goods in the income tax ordinance 1984 may cause significant impact of prices of goods triggering inflation further, says Mashuque Ahmed, managing partner of Ahmed Mashuque and Co.

Talking to the FE, two top income-tax officials said change in definition has been incorporated to check corporate-tax evasion through cash purchase.

They said around 80 per cent of corporate tax is being evaded by using the technique of spot and direct purchase.

However, corporate taxpayers hold the view that sudden imposition of penalty at high rate could be avoided as it is not possible for them to deduct tax from all purchases.

They suggest upward adjustment of the allowable limit of cash transaction for corporate taxpayers to enjoy the cut-down tax rate and lowering the penalty for non-compliance.

"Many of the suppliers in Bangladesh do not have bank accounts so it is difficult for companies to conduct all transactions through banking channel," says Mr Khan.

Direct purchase has been defined as supply of goods in the proposed new budget, placed on June 9, 2022, to impose withholding or source tax on such spot purchase.

Mr Khan opines that such withholding tax is not adjustable with the actual payable taxes as per section 82C of the income-tax ordinance and it increases actual tax liability.

As per proposed measure, corporate taxpayers will have to pay 50-percent higher tax if the payee failed to submit proof of return or payee did not receive payment through bank transfer.

"It is extremely unjust to subject the withholding entities to ensuring proof of submission of return that is clearly the domain of the tax authority," he says.

Emergency cash purchases are often required for factory spares and other supplies that are not stock items, he points out.

With this, in most cases, the tax-deduction rate will shoot up by 50 per cent for corporate taxpayers next year, he fears.

The condition tagged to enjoying 2.5-percent cut in corporate tax seems also difficult to comply with as an insufficient ceiling at Tk 1.2 million is fixed per annum for allowable petty-cash expenses.

Businesses, including hotel, resort, community centre, and transport agency, having annual turnover exceeding Tk 10 million and any e-commerce platform would be sternly affected with this measure, says Mr Ahmed.

As there is generally no corporate credit-card facility in banks, the businesses would not conduct all recorded transactions for supply of goods, he notes.

He feels that it is difficult to conduct bank transaction on spot purchase in almost all of the business sectors, including poultry, restaurants and such other areas.

Inclusion of high penalty would heighten the rate of withholding tax to 150 per cent of defined tax rate on direct or spot purchase in cash, he predicts.

In case of failure to deduct tax on such cash purchase, the cost of doing business of related business entities will increase by 5.0 to 60 per cent.

He says efficient execution of such change will require efficient tax compliance as well as appropriate awareness among the related business enterprises, which may require four to five years.

He, however, fears so many businesses may fail to survive in this period for losing their capability to pay higher taxes.

A senior tax official says spot purchase is a long-practiced technique of corporate-tax evasion that has been addressed this time. Around 80 per cent of the corporate-tax evasion is done using this technique, he adds.

Why a corporate taxpayer or company would purchase goods directly from market without formal channel, he questions.

Income tax field offices have identified several cases where millions of taka has been shown as spot-purchase costs to avoid documentation requirements of income tax wings, he says.

The income tax wing has made the definition 'supply of goods' consistent with the VAT and Supplementary Duty Act 2012, the Companies Act 1994 and international definition as well, he mentioned.

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