Tax cut galore in next budget

"Cuts, cuts, cuts!" -- would be the chorus of Finance Minister AHM Mustafa Kamal's third budget speech that he is due to deliver in the parliament tomorrow.

The budget, which is coming off the back of a stalled economic recovery thanks to the second wave of COVID-19 cases, will look to revive the tremendous growth momentum that has made Bangladesh the wealthiest nation in the Indian subcontinent in per capita terms.

And the cynosure would be on fuelling domestic consumption meaningfully and generating employment, and Kamal is hoping to achieve that by a mixed bag of tax cut, holiday and exemption.

The measure that would draw the most cheers would be the 2.5 percentage points slash in corporate tax, a longstanding demand of the private sector, which has become all the more pertinent in jumpstarting the economic locomotive.

At present, the corporate tax range from 25 percent to 45 percent.

The one-person company law would be implemented from the next fiscal year, and the corporate tax for such companies has been fixed at 25 percent.

The most adventurous fiscal measure in the budget for fiscal 2021-22 would be a tax holiday for 10 years for manufacturing import-substitute products like cars, in a move similar to the Narendra Modi government's 'Make in India' initiative.

The tax holiday would be extended for another 10 years on certain conditions, according to finance ministry officials.

The provision of a 10 percent value-added tax on locally-manufactured sanitary products would be lifted, in yet another move aimed at diverting consumers away from imports.

The advance income tax for raw material imports for domestic manufacturing would be trimmed by 1 percentage point to give a lift to industries battered by the pandemic.

The pandemic has left the country's health infrastructure woefully exposed, and with the view to addressing the problem, the government has decided to extend a tax holiday for 10 years for constructing hospitals outside of Dhaka with at least 250 beds.

There would be tax benefits by way of lower corporate tax for setting up vocational training centres, in a move aimed at upskilling abundant available labour and taking advantage of the country's demographic dividend that will wind down from 2035.

The pandemic has turbocharged digitalisation and brought to the fore the convenience of technology.

In keeping with that spirit and in preparation for the fourth Industrial Revolution (4IR), nine more ICT services such as cloud service, e-learning platforms, mobile apps, system link, e-book platforms, app developers, IT freelancers will be extended tax exemptions from next fiscal year that are currently enjoyed by 22 tech-enabled services.

The existing provision of no tax or duty on imported computers and their spare parts will continue, while there would be tax exemption for local manufacturing of computers.

The provision for legalising untaxed income unquestioned in this fiscal year's budget would continue.

The scope to whiten black money has been open for decades but subject to the payment of a penalty and limited to a few sectors. Until the last fiscal year, the government agencies could raise questions about the source of the money declared.

But in fiscal 2020-21, the government expanded the scope for all sectors and dropped the provision to question the source, with the view to generate more revenue and jobs.

In the first nine months of the fiscal year, taxpayers legalised a record Tk 14,295 crore by showing their wealth in the form of cash, fixed deposit receipts, saving certificates and shares. The National Board of Revenue (NBR) got Tk 1,439 crore in taxes.

Since independence, Tk 30,823 crore has been whitened, which fetched about Tk 3,900 crore for the state coffer.

There would be no need to present the Taxpayer's Identification Number (TIN) for purchasing savings certificate of up to Tk 2 lakh from the next fiscal year. At present, the TIN needs to be furnished for savings certificate purchase of Tk 1 lakh and above.

The interest rate on the national savings certificate, whose sales have shot through the roof for its lucrative returns in contrast to other instruments, would be brought down by 1 percentage points.

At present, the average interest rate on national savings instruments is 11.4 percent.

The wealth surcharge structure, which applies to those with a net wealth of Tk 3 crore, would be revamped, too.

The number of slabs would be brought down from seven to five.

An individual taxpayer having a net wealth of Tk 50 crore or above shall pay the higher of 0.25 percent of net wealth or 35 percent of his/her income tax payable as a surcharge in the next fiscal year.

At present, it is 0.1 percent of net wealth or 30 percent of income tax.

The penalty for VAT evasion would be brought down too to give some leeway to businesses amid the pandemic.

At present, the penalty is twice the amount of VAT evaded. From the next fiscal year, it would be the same amount evaded.

Companies employing transgender people would get corporate tax cuts as well as other benefits.

The measures are expected to fetch the government Tk 330,000 crore, 9.6 percent more than fiscal 2020-21's revised revenue collection target and the same as this year's original target.

In the first 10 months of this fiscal year, the revenue authority managed 12.7 percent higher receipts of Tk 197,583 crore, and tax officials expect the full year collections to be no more than Tk 280,000 crore.

This begs the question of how the government would manage the higher collections next fiscal year amid the wave of tax reliefs.

Kamal is pinning his hopes on a 7.2 percent economic growth, inflation, rising imports, deployment of electronic fiscal devices and expansion of income tax -- all of which will set the state coffers ringing.