Advance income tax on imports to see major overhaul

The government is likely to bring about major changes in the Advance Income Tax (AIT) structure in the upcoming budget for the fiscal 2021-22, to promote local industries as well as to protect entrepreneurs of high-value crops.

The National Board of Revenue (NBR) is going to reduce AIT on imports of raw materials meant for a number of industries such as cement and mattress, said officials at the finance ministry.

Farmers producing high-value crops will get protection as a 5% AIT will be slapped on imported fruits and vegetables, including capsicum.

The reduced AIT rate will be applicable for importers of ocean-going vessels in the next fiscal year, they added.

But, some luxury items like perfume and wine will see their AIT rate increase to 20% from the existing 5%, the ministry officials said.

The AIT is a type of tax levied on goods imported for commercial purposes. This tax is not levied on the import of consumer goods. The tax system was introduced in 2006 to bring unregistered importers under the tax net.

The NBR has already secured the go-ahead of the proposals from the government high-ups.

On 3 June, Finance Minister AHM Mustafa Kamal will place the budget proposals in Parliament.

Businesses have long been demanding a reduction in AIT rates to facilitate local industries and ease of doing business to attract more local and foreign direct investments.

Abul Kasem Khan, chairman at the Business Initiative Leading Development (BUILD), told The Business Standard, "We should welcome the government's initiative to restructure the AIT rates. It is a good move to support local industries.

"We think the AIT will be abolished in the coming days as it should be realised after sales of goods not in advance."

Finance ministry officials said the NBR has proposed reducing the AIT on cement clinker to 1% from the existing 2% to give breathing space for local industries.

According to industry insiders, the cement industry's market size is around Tk20,000 crore, and its exported goods amounted to over $9 million in FY20.

The AIT on clinker imports is an added burden on businesses as it hurts their capital base, say industry insiders.

The NBR also brought forward a proposal to cut the AIT on the import of ocean-going vessels to 1% from 2% with an aim to increase the number of domestic flag carrier ships, officials said.

Mostafa Kamal, vice-chairman of the Bangladesh Ocean Going Ship Owners' Association, said "We have to welcome the government's initiative, though our demand was to withdraw it."

"Although the sector was declared as an export earning industry in 1996, we are not getting any benefit that other industries like the RMG enjoy. Instead, the government is taxing our earnings," added Mostafa Kamal, also chairman of Meghna Group.

"We demanded that the government withdraw this tax, which will be helpful to create more employment in the industry."

Bangladeshi businesses expend about $8-9 billion in freight costs a year, but local ship owners can get hold of only 10-15% of it in the absence of an adequate number of ships.

The initiative to levy the 5% AIT on imported fruits and vegetables will encourage local modern agriculture farmers who are locally producing such high-value crops.

The country imports fruits worth about Tk5,600 crore annually.

The NBR has also proposed reducing AIT on coco substrate imports to respond to the demand of the SME Foundation. The upcoming budget will reduce AIT on coco substrate import to 3% from 5% to make space for importing quality raw materials for the local mattress industry, the ministry officials said.  

According to industry insiders, the local bedding product industry's annual market size is about Tk8,000 crore. Mattress is a major part of the industry and its market is growing by 20% per annum, they added.

A number of local industries have invested in the fragrance industry, whose demand is growing day by day. That is why the government is going to increase the AIT on perfume imports, ministry officials said.

According to industry insiders, the country's fragrance market now amounts to over Tk100 crore.

The revenue board also proposed increasing the AIT to 20% from 5% on imports of ethyl alcohol, spirits, grape wine, whiskey, rum and tafia, gin and genever, vodka and liqueur.