Tax measures to further strain businesses

The government's latest tax measures are likely to put further strain on businesses, as tax burdens have increased even though economic recovery remains sluggish, experts warned yesterday.

"When companies have to pay a 1 percent turnover tax despite making no profit, they essentially have to pay from their capital," said Snehasish Barua, managing director of SMAC Advisory Services Ltd.

At a time when businesses are already struggling, if the capital begins to shrink, the company will not survive, he said.

"If the company doesn't survive, neither will employment be generated, nor will the government receive any revenue," he warned.

The tax on individual businesspeople has increased by 300 percent—from 0.25 percent to 1 percent. Since many individuals operate through companies, some of their tax burden will inevitably shift to the company, he said.

Barua was speaking at a press conference on the proposed national budget for fiscal year 2025-26, organised by the Institute of Chartered Accountants of Bangladesh (ICAB) at its head office in Dhaka.

He said listed companies with less than 10 percent of their shares in the stock market would now face a corporate tax rate of 27.25 percent, up from 22.5 percent.

This poses a legal problem. The law should be amended with provisions to benefit companies that offload 10 percent of their shares through follow-on public offerings (FPOs), repeat public offerings, or rights issues, he said.

He said that although the government has taken some measures to reduce the effective tax rate, the statutory tax rate has increased, and source deductions remain unchanged. Consequently, businesses will see little benefit, said Barua.

On top of that, the increase in personal income tax has employees worried, as their take-home income will decline, he said.

There were some positive procedural changes in VAT, which are appreciated, he added.

"However, the fundamental reforms we were hoping for were not reflected in the budget," the audit and tax expert added.

Significant reforms have been introduced in customs duties to rationalise tariffs, and there were good steps for promoting local industry and exports, he said.

"But if we can't reduce lead times for customers, and if we can't release goods from the ports efficiently, we will lose competitiveness to other countries. There must be initiatives to address this," he said.

Maria Howlader, president of the ICAB, welcomed the reduction in budget size, saying that the Tk 7,000 crore cut in the 2025–26 budget compared to that of the previous year reflects a prudent contractionary approach to tackle ongoing economic challenges.

In the face of high inflation and limited revenue space, setting a lower budget deficit is a wise move, she said.

She said several positive amendments have been made to the income tax act in the proposed budget.

"A prospective two-year tax rate has been introduced, and the tax rate for 'cashless companies', excluding some publicly traded ones, has been increased to 27.5 percent, though we believe it should remain within 25 percent," said Howlader.

According to her, raising the turnover tax from 0.6 percent to 1 percent and increasing individual tax rates are concerning.

"In VAT and customs, we welcome reforms such as reduced advance tax on raw material imports and longer credit claim periods," she said.

"But higher advance VAT on commercial goods and a 15 percent VAT on online sales commissions may need reconsideration. Regulatory duties on essential and healthcare goods also warrant review," added Howlader.

Md Humayun Kabir, vice president of the South Asian Federation of Accountants, moderated the question-answer session at the press conference.