The Financial Express

Banks, insurance companies and FIs

Budget proposes 2.50pc cut in corporate tax

Banker appreciates, says it would increase banks' profitability

| Updated: June 10, 2018 11:46:15

Budget proposes 2.50pc cut in corporate tax

The government has proposed to cut the corporate tax rates by 2.50 per cent for publicly and non-publicly traded banks, insurance companies and financial institutions (FIs).

Placing the national budget for fiscal year (FY) 2018-19, Finance Minister AMA Muhith proposed to reduce the rate to 37.50 per cent from existing 40 per cent for publicly traded banks, insurance companies and financial institutions.

The rate for banks, insurance companies, and financial institutions those approved by government in 2013 will also be 37.5 per cent instead of existing 40 per cent.

Nine banks, including The Farmers Bank Limited, were approved in 2013.

However, the other existing tax thresholds applicable for the capital market remained unchanged in the proposed budget.

A separate paragraph regarding the capital market was included in the budget speech of the previous FY, but no separate paragraph was included in this speech.

The minister, however, mentioned a couple of words 'capital market' in three separate places as he touched other issues.

He also proposed 40 per cent corporate tax for non-publicly traded banks, insurance companies and financial institutions, reducing from the existing rate of 42.50 per cent.

Besides, the corporate tax rates for publicly and non-publicly traded companies, listed and non-listed mobile operators, and the dividend income remained unchanged.

Mutual Trust Bank Managing Director Anis A. Khan appreciated the proposal to reduce the corporate tax for publicly and non-publicly traded banks, saying that it would leave a good impact on the banks' profitability.

"Previously, the effective tax rate stood at 43 per cent due to some other reasons. So, the reduction would increase the banks' profitability. Shareholders will also be benefited, as a result," he told the FE in an instant reaction.

In his budget speech, the finance minister said it was often argued that the corporate tax rate in Bangladesh was high.

"This is not correct. Corporate tax for publicly traded company in Bangladesh is 25 percent, which is lower than many countries in South Asia and very compatible with global average (24.29 percent)," he said.

He said, however, the tax rates for banks and financial institutions were a bit higher than other corporate sectors. "Therefore, I propose to reduce the tax rate for banks and financial institutions by 2.5 per cent."

Muhith also said the government will lose a certain amount of tax revenue from such rationalisation of corporate tax rate. "However, this will give a positive signal to our investors."

Both the Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) earlier put forward a set of budget proposals for the FY 2018-19.

The exchanges had sought 100 per cent tax waiver from the exchanges' income.

They proposed the reduction of tax at source to 0.015 per cent from the existing 0.05 per cent on commission, realised by the stock brokers against transaction of shares, debentures, mutual funds, or securities.

The DSE and CSE had also proposed to reduce corporate tax of the listed companies to 20 per cent from the existing 25 per cent.

DSE has sought the scope of purchasing national savings certificates as safe investment tools.

The premier bourse also sought tax exemption on capital gains derived from transfer of exchange's shares.

DSE is set to complete the sale of its 25 per cent shares, out of 60 per cent, to a Chinese consortium selected as a strategic partner.

DSE and CSE have also proposed to increase the investors' tax-free dividend income limit to Tk 0.1 million from the existing Tk 25,000.

Asked, DSE chairman Professor Abul Hashem refused to make comment on the budget proposals and the tax thresholds in the proposed budget.

Md. Shakil Rizvi, a former DSE president, said the unchanged thresholds are better than imposing new tax measures for the capital market. 

"The proposal of reducing corporate tax for publicly traded bank, insurance and financial institutions will have positive impact for the capital market," Rizvi said.

He added that more non-listed companies, other than banks, insurance and financial institutions, would be interested to go public if their corporate tax could also be reduced.

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