Businesses demand VAT exemptions, tax relief for SMEs in FY22

Leading trade bodies of the country have urged the government to waive VAT and all kinds of tax for the pandemic-hit small and medium enterprises in the budget for the forthcoming fiscal year.

They have recommended reduction of corporate tax, withdrawal of advance income tax (AIT) and reduction of turnover tax rate for public limited companies.

Besides, they have asked for announcing an incentive package like that of the previous year to pay wages to workers of export-oriented industries for May-July and two Eid bonuses, and continuing various ongoing incentive packages – if the ongoing Covid situation is prolonged.

Representatives of the country's leading business organisations put forward these demands during a virtual pre-budget discussion with Finance Minister AHM Mustafa Kamal on Thursday, according to several business leaders and finance ministry officials who took part in the meeting.

While briefing reporters after the meeting, the finance minister said he would have discussions with the budget team, the Bangladesh Bank, the finance ministry and the National Board of Revenue to decide to what extent the demands raised by the business community can be met.

Regarding the demand to continue the incentive packages, he said, "The issue of giving incentives is in the hands of the prime minister. She must be thinking about it."

The minister further said the highest priority in the budget would be given to creating employment and increasing revenue by boosting local industries and revitalising the economy. However, no one will be given extra trouble to increase revenue, he added.

Sheikh Fazle Fahim, president of the Federation of Bangladesh Chamber of Commerce and Industry (FBCCI), has proposed abolishing AIT and advance tax (AT). "If all types of transactions from the industry level to wholesale, and from wholesale to retailer are made bank-to-bank on the basis of invoices, then government revenue will increase. Traders also will be exempted from additional taxes."

"Last year, the NBR had accumulated Tk700 crore at AIT from the cement sector, which has now risen to Tk1,200 crore. Business people in this sector would not have had to take incentive loans, if the extra money had been repaid after adjusting the tax in a timely manner," he maintained.

Fahim also termed a turnover tax of 0.5% on wholesalers "unrealistic" and asked for value chain upgradation, product diversification, and tax holiday facilities.

Mohammad Abdus Salam, acting president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said like last year incentives are needed this year to pay workers' salaries and Eid bonuses during May-July.

He recommended continuing the existing 1% cash incentive facility on garment exports in the next fiscal year and maintaining the corporate tax facility at a discounted rate for the next five years.

Mohammad Hatem, first senior president of the BKMEA, said the existing 10% source tax on cash assistance provided by the government in return for exports should be reduced to 3%.

Tariffs on imports of chemicals used in effluent treatment plants and water treatment plants need to be revoked, he added.

"Even after being 100% VAT-free, we have to file VAT returns every month. There is no necessity of this. In addition, 70% of knitwear companies do not need bond licences as they use yarn produced by local textile mills. But the Bangladesh Bank is pressuring for obtaining bond licences. We want to get rid of it," said Hatem.

Barrister Nihad Kabir, president of the Metropolitan Chamber of Commerce and Industry, said, "Researching various sectors, we see that the main challenges in business are still high tax rates and harassment by the tax administration. Even though the NBR is business-friendly on paper, the reality is different.

"The NBR has collected around Tk300 crore from BSRM as AIT, but there is no initiative to adjust it."

She said the SMEs are the mainstay of the economy, but they did not get the incentive money.

If the SME sector is not revived, domestic demand will not grow and so will large industries, she argued, and proposed to provide shop rent and tax assistance to SMEs in the next budget.

Suggesting the government to continue the announced incentive packages to revive the economy, Mahbubul Alam, president of Chattogram Chamber of Commerce and Industry, said area-based chambers and associations should be given the responsibility to increase credit disbursement in the SME sector.

He said no wholesaler in Khatunganj and Moulvibazar would be able to survive, if the 0.5% turnover tax on enterprises having an annual turnover of over Tk3 crore is in force. He proposed to reduce this rate.

"If one out of 10 companies under an industrial group defaults on a bank loan, the Bangladesh Bank marks the 9 other companies as defaulters too, making them unable to open LCs even though they have not defaulted on loans. We want to get rid of this practice," Mahbubul said.

Mohammad Ali Khokon, president of Bangladesh Textile Mills Association (BTMA), said while 4% VAT has been imposed on yarn, 8% VAT has been imposed on man-made fibre used to make clothes for the poor people of the country.

He proposed imposing 3% VAT on all types of yarn. He also recommended raising the tariff value on imports of three-pieces and other types of clothes from abroad.

Mentioning that about 4 billion meters of fabric is being imported annually to meet the demand for raw materials of woven products exporters, he said the stuff can be produced domestically if local weaving mills were given support to grow.

To this end, he stressed removing the legal complexities.

Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry, emphasised the need for a simple and business-friendly policy in the forthcoming budget to focus on local industries for post-Covid economic recovery.

He also pointed out that 32.5% corporate tax put in force in the country is the highest among all the countries in the region and proposed to reduce it by 2.5 percentage points per annum.

He recommended that VAT on the sale of jute products in the local market be revoked and various export-oriented sectors be provided with policy support following the RMG success model.

Rupali Haque Chowdhury, president of the Foreign Chamber of Commerce and Industry, said even though the corporate tax for private limited companies has been reduced, the indirect tax is still very high.

The caps on promotional expenditure and foreign tours need to be withdrawn, she added.

"After taking 4% advance tax, 15% VAT is putting extra pressure on traders." She also recommended that the corporate tax on public limited companies be reduced.

Saiful Islam, president of the Leather Goods and Footwear Manufacturers and Exporters Association, proposed to repeal source tax on AIT and cash assistance.

Selima Ahmad, president of the Bangladesh Women's Chamber of Commerce and Industry, demanded a lump sum allocation of Tk200 crore in the next budget for providing capital and training to women entrepreneurs. She also proposed to exempt new women entrepreneurs from tax-VAT for three years.

Shomi Kaiser, president of the e-Commerce Association of Bangladesh (e-CAB), recommended waiving VAT on e-commerce organisations with a turnover of less than Tk1 crore and digital payments on online purchases.

Speaking about the demands of the business community regarding taxes and VAT, the finance minister said, "The business people have asked for increasing facilities in the areas of customs and taxes and demanded concessions in some new areas. We will consider their demands."

Mentioning that the business community had already sent letters to the ministry seeking facility to whiten black money, the minister said, "Some undisclosed money has been invested in the real estate sector because of our system. However, there was no discussion about black money in today's meeting. But that doesn't mean they didn't demand it."