Turnover tax cut to bring relief to small traders

The upcoming national budget may bring good news for wholesalers, distributors and businesses of commodities and proprietorships, startups and sick companies. 

The National Board of Revenue (NBR) has proposed to reduce their minimum turnover tax to give them relief during the Covid period. 

Sources at the finance ministry and the NBR said tax rebate will be given for individual investments up to Tk 1 crore compared to Tk 1.5 crore now. 

Moreover, interest income on loans from microfinance institutions registered with the Micro Credit Regulatory Authority (MCRA) will be exempted from tax. 

Businesses that register annual sales of up to Tk 3 crore, will not have to pay tax. For sales above the amount, they will pay a minimum income tax at a rate of 0.25%, known as minimum turnover tax. It was introduced through the budget of fiscal year 2016-17, according to which businessmen will have to pay tax whether they make profit or loss. 

Business chambers and associations have been demanding the withdrawal of the minimum tax, terming that this tax is contradictory with the principles of the Income Tax Ordinance. 

Currently, businesses pay tax at a rate of 0.50% for sales worth more than Tk 3 crore. 

For industries engaged in manufacturing goods, the minimum tax rate is 0.10% for the first three years after rolling out production. 

The minimum turnover tax rate is set at 2% for mobile network operators and it is only 1% for tobacco manufacturing companies.

According to tax officials, a number of traders do not pay tax by showing losses in the company accounts. Some declare small income to pay a small amount in tax. 

The revenue authority has incorporated this section in the Income Tax Ordinance to realise revenue from such businesses. As a result, many companies feel forced to pay taxes to government exchequer. 

NBR officials think that the existing turnover tax on transactions is a little higher in the case of "Demand Order (DO)" business and consumer goods. 

If the tax is reduced, the working capital will increase in proprietorship businesses.

Talking with The Business Standard, Dhaka Chamber of Commerce and Industry (DCCI) President Rizwan Rahman said the minimum turnover tax is totally contradictory with the principles of income tax. 

"Taxes should be imposed on businesses when they are profitable. It [minimum turnover tax] is not logical during the pandemic period. That is why we urged the authority to abolish it." 

Investment amounts to enjoy tax rebate to be reduced 

The maximum limit of investments by individual taxpayers to get tax rebate is likely to be reduced in the budget to Tk1 crore from Tk1.5 crore.

Currently, any taxpayers can enjoy this facility by investing in nine sectors and donating in 13 sectors. Those are - savings certificates, purchase of shares of listed companies, mutual funds or debentures, life insurance premiums, contributions to the provident fund or provident fund of government officials, employers and officer-employee contributions to recognized provident funds, contributions to welfare funds and group insurance funds, investment in government-approved treasury bonds up to a maximum of Tk60,000 per annum, contributions to FDR and Superannuation Fund.

In these sectors, a taxpayer can invest or donate up to 25% of his total annual income. If she/he invests or donates more than this, she/he will not get a discount for the extra amount. In this case, 15% of the total investment and donations will be tax deductible. And if the annual income is more than 15 lakh, tax exemption will be given at the rate of 10% on investment/donation of 25% of his income.

MFI's likely to get tax free benefit

In the upcoming budget, microfinance institutions registered with Micro-Credit Regulatory Authorities will enjoy tax free benefits against interest income. 

In this regard, the sixth schedule of the Income Tax Ordinance is being amended through the Finance Bill. 

Currently, NGOs registered with the NGO Bureau are getting this facility. However, all income other than interest income from microcredit is taxable.

According to the Asian Development Bank, a total of 26,000 NGOs are registered with the NGO Affairs Bureau, while the Microcredit Regulatory Authority (MRA) data shows that there are 786 NGOs registered with it, disbursing microloans. 

Mobile Financial Service (MFS) is likely to be a formal payment getaway. 

According to the Income Tax Ordinance, if expenditure exceeds Tk 50,000, except in the case of raw materials production and salary-allowance, that should be through checks or bank transfer. 

If the payment is not paid by checks or bank transfer, the spending is not permissible. As a result, that expenditure will come under payable income tax.