Doulot Akter Mala

The government has slapped a minimum tax of Tk 5,000 on each company irrespective of whether it made profit or loss, triggering an outcry from the business community.

Finance minister AMA Muhith announced the measure in the 'finance bill', making the order effective for all companies operating in the country from July 1, 2009.

National Board of Revenue (NBR) officials said this was the first time in the country's history that companies have been made to pay a specific amount of tax, no matter whether they are making profit, incurring losses or closed.

The board had earlier introduced 'turnover tax' in 2006-07 financial year, making the companies and business firms pay 0.5 per tax on their turnover. It was lowered to 0.25 per cent in the 2007-08 fiscal year.

The army-backed caretaker government waived the measure altogether in the outgoing fiscal in the face of widespread criticism from companies that are making loss but paying taxes on the basis of their turnover.

The latest tax was greeted with a heavy lashing by the country's apex trade body, which described it as 'unfair' and demanded its immediate withdrawal for the sake of business-friendly atmosphere.

"It is not justified to impose tax burden on loss making companies," Federation of Bangladesh Chamber of Commerce and Industry (FBCCI) president Annisul Huq told the FE.

"Some companies have been making losses for a long time. They have to be financed by their profit-making sister companies or by individuals," Huq said, adding his apex chamber would discuss the issue with the business community.

Huq said the government should impose tax on the basis of taxable income or profit of any company, without pressurising the loss making firms.

Director General of Bangladesh Institute of Development Studies (BIDS) Mustofa Kamal Mujeri, however, welcomed the new tax measure saying that it would boost revenue collections for the fund-hungry government.

"It is a very nominal amount. The measure will help government expand its company tax net," he said, adding payment of nominal tax of Tk 5000 would not pose any problem to any registered company.

A senior income tax official, preferring anonymity, found the measure inconsistent with the country's tax laws.

"Imposition of such tax is violation of the existing income tax rules. Income tax should be charged on any company, which is making profit," he said.

"You cannot impose a specific tax amount on a company that's not making any profit or is dormant or closed down. Companies incurring loss should not pay taxes if their earning is below taxable level," he added.

The NBR said only 1.25 per cent individuals and companies are under the tax-net, giving Bangladesh the dubious honour of one of the least taxed countries in the world.

In his budget speech, Muhith said the tax-GDP ratio in Bangladesh is only 8.5 per cent, which is the lowest in Asia. The ratio is over 14 per cent in Nepal and Pakistan and over 12 per cent in India.

The International Monetary Fund has suggested that the government increase the ratio to at least 12 percent to finance its growing infrastructure and social safety costs and to maintain fiscal discipline.

Company taxes account for 60 per cent of total income tax collection in the country. Companies that are making profits are required to pay taxes at rates ranging from 27.5 per cent to 45 per cent.