The continuous support of the mobile financial service (MFS) industry to the government and individuals to face the challenges of Covid-19 in the last 16 months has been recognised by the top policy-makers.

In the first week of June, Finance Minister AHM Mustafa Kamal, while unveiling the budget for the 2021-22 fiscal year, pointed out the industry's role several times and proposed to include the payment system to carry out various transactions.

There is no doubt that the MFS has brought forth new possibilities and changed the mode of transactions to a large extent through the handheld device. It has accelerated financial inclusion and ensured transparency in the disbursement of government financial assistance.

When the unprecedented pandemic was wreaking havoc on the economy and the entire country was suffering in so many ways, the MFS emerged as a saviour.

The industry has created enormous opportunity for new businesses and introduced the country to the world anew. But it is going to face a significant burden in the form of corporate tax from the upcoming fiscal year.

We were stunned to see that among all the sectors, only the MFS sector will see a hike in the corporate tax rate in the next fiscal year as per the budget proposals. The rest of the businesses either have seen a cut in the corporate tax rate, or their tax rate has remained unchanged. 

It seemed to me that there must be a misunderstanding. Whether right or wrong, we must take the initiative to resolve it. Otherwise, the journey of digitalisation and our aspiration to become a higher middle-income country and ultimately a developed economy will be dealt with a major blow. 

Currently, the MFS pays 32.5 per cent corporate tax. It has been proposed to increase it to 37.5 per cent and 40 per cent in two categories.

The MFS that is listed on the stock market will pay 37.5 per cent corporate tax, and the non-listed will have to fork out 40 per cent. As no firm has gone public yet, all MFS providers will have to bear a corporate tax rate of 40 per cent if the proposal does not see any revision before the budget is passed in the august Parliament.

As no MFS operators are making any profit, they don't have to pay the corporate tax. As a result, the tax burden is not affecting the customers. But it will have a long-term impact on attracting investment to the sector. With such a tax rate, the potential investors will backtrack from making any investment in the sector.

As for Nagad, several world-renowned companies are in talks with us to invest in the company. With the new tax structure, many of them might be discouraged. So, we should not miss out on the opportunities of drawing international investment to the sector as it will speed up digitalisation.

The MFS industry is already a lucrative tax providing sector.

For each transaction, the government gets 15 per cent as a value-added tax (VAT). Moreover, a 10 per cent advance income tax (AIT) at the agent level and a 12 per cent AIT at the distributor level is already applicable. So, the government collects a significant amount of tax from the sector. As it is an easy source for generating revenues, the government might have been prompted to raise the corporate tax rate.

The MFS sector has been recognised in the national budget. In order to obtain information for government records, MFS transaction information was proposed to be included.

Using banks has been mandatory to pay salaries above Tk 15,000. Now, MFS has been included as a compulsory medium. Moreover, house rent can be paid through MFS, which can also be presented as proof in the income tax return.

Previously, it was mandatory to use the banking channel to transact more than Tk 50,000 for businesses. The new budget has proposed to incorporate MFS operators. The transaction records can also be produced during return submission.

All of these are actually a big recognition for the MFS sector and the work we, all the operators, are doing in easing and making transactions transparent.

We should not forget that this is a growing industry. Customers are getting used to the service. So, the MFS operators are continuously putting in place the proper infrastructure and raising awareness among the increasing number of users.

New technologies and solutions are being added regularly to improve the service, make the distribution channel more efficient, and ensure foolproof security.

So, investment is taking place in the technologies, human resources, marketing and campaigns to make the digital ecosystem sound. The addition of technologies will continue in the years to come.

MFS operators are largely the carriers that are used to transfer money from one mobile wallet to another wallet or bank account. But it has a profound impact on the economy. We have seen that during the disbursement of the Honourable Prime Minister's Eid gift for about 35 lakh poor people.

Three MFS operators disbursed the fund so efficiently and cost-effectively that no question was raised. The government is very pleased, so some ministries have decided to use our platforms to transfer cash support under their social safety net schemes. 

The service is largely used by the low-income groups, who don't have access to the formal financial system. So, any move that stifles the growth of the MFS industry will also stall the financial inclusion agenda of Bangladesh and hurt the overall digitalisation. So, the proposed hike in the corporate tax rate requires reconsideration.

We understand that the government needs revenues to attain its development goals. But it will not gain much from the corporate tax rate hike as most of the MFS operators are not making a profit.

The finance minister has recognised the positive impact of the MFS sector in his budget speech which is a very positive sign. But, because of the added pressure set to originate from the hike in the corporate tax, we cannot relish our hard-won achievement. 

The author is managing director of Nagad, the MFS wing of the postal department.