NBR agrees on coming out of non-refundable minimum tax system

The National Board of Revenue (NBR), aiming to align with international standards, has primarily agreed to come out of the practice of deducting a non-refundable minimum tax at source.

During a meeting with the revenue reform committee yesterday, NBR officials also expressed their full support for implementing a sustainable and transparent automation system to curb corruption, as well as reforming the three existing laws – the Customs Act, Value Added Tax and Supplementary Duty Act, and Income Tax Act – to meet global standards.

Officials are optimistic that once the reforms are properly completed, both local and foreign investors will gain increased confidence in the system.

Local and international businesses consistently voice concerns about the tax collection system, particularly regarding the non-refundable minimum tax requirement, even when they incur losses.

Md Farid Uddin, a former NBR member and part of the five-member revenue reform committee, told The Business Standard, "Senior officials at the NBR agree that distortions exist in the current tax collection system, particularly regarding minimum tax as a final settlement, and that these should be removed through legislative amendments."

He stated that NBR officials have expressed their support for reforms that would enhance revenue collection and minimise irregularities.

"The senior NBR officials acknowledge that the current revenue management system is neither fully manual nor automated. If complete automation were implemented, taxpayer harassment would be significantly reduced, and revenue would increase," he added, noting that the revenue officials were eager to support the reform.

A senior NBR official, speaking on condition of anonymity, told TBS, "Tax policy reforms were discussed. It's true that turnover tax and minimum tax, which are collected as a final settlement without adjustment, distort international standards. We agree that these aspects, among others, need to be revised.

"We, however, are concerned that eliminating this system immediately could negatively impact revenue, as a significant portion of tax is collected this way. We had to implement this tax system due to weak audits and a lack of transparency."

Farid Uddin agreed with his concern and added, "With proper automation and digitisation in revenue management, revenue collection could be doubled from the current levels."

The interim government, led by Professor Muhammad Yunus, formed the revenue reform committee on 9 October, headed by former NBR chairman Muhammad Abdul Mazid.

Since Bangladesh's independence, there have been numerous allegations of harassment and corruption among VAT, tax, and customs officials, and these complaints are only increasing.

On the other hand, businesses have frequently faced accusations of tax evasion. Despite multiple discussions and initiatives over the past two decades to automate revenue management, implementation has been minimal.

As a result, complaints of harassment and corruption from taxpayers continue, and revenue collection remains below expectations – currently less than 8% of GDP, one of the lowest rates globally.

Bangladesh's development partners, including the International Monetary Fund and the World Bank, are also pressing for reforms in the revenue sector to enhance transparency.

The Foreign Investors Chamber of Commerce and Industry (FICCI), representing global businesses in the country, has long advocated for the abolition of this tax collection system.

Currently, the NBR collects tax deductions at source at rates ranging from 0.5% to 30% across at least 55 sectors, comprising over 50% of the total income tax collection.

In FY24, the NBR collected Tk1,31,102 crore in income and travel taxes, a significant portion of which consists of minimum tax and turnover tax.

Zaved Akhter, president of FICCI, welcomed this initiative, terming it "the right step at the right time".

Zaved, also managing director of Unilever Bangladesh Limited, one of the largest fast-moving consumer goods companies in the country, added that if Bangladesh adopts this decision, a clear roadmap for implementation would be necessary.

"If the minimum tax system is reduced and provides a facility for refunds or adjustments, it would be helpful. Our organisation is ready to assist the committee if they seek our input," he said. "If Bangladesh's revenue system aligns with international standards, it will build confidence among global investors."

Reform committee chief Abdul Mazid declined to comment on the matter but stated, "We will meet with other sectors involved in revenue mobilisation, including businesses, and aim to complete our report soon."

Farid Uddin added, "We are working with the goal of completing our work within the next four months."