Government Proposes Corporate Tax Incentives to Boost Productivity
In a strategic move to stimulate industrial growth and enhance tax revenue, the government has unveiled plans to offer corporate tax exemptions within the productive sector. According to an official source, the upcoming fiscal year’s budget for 2024-25 may see a reduction in the company tax rate by 2.5 percent. This initiative is designed to incentivize the establishment of new industries and augment overall tax contributions.
Furthering its commitment to economic expansion, the government also intends to maintain tax exemptions on the import of raw materials for consumer goods. This decision comes in light of the escalating dollar price, aiming to alleviate financial pressures on businesses reliant on these imports.
The digital economy is set to benefit as well, with proposals suggesting an extension of the tax exemption period for 27 digital services by an additional two years. The Ministry of Finance disclosed these plans following a confidential meeting between Finance Minister Abul Hassan Mahmood Ali and NBR Chairman Abu Hena Md. Rahmatul Muneem, with State Minister for Finance Waseqa Ayesha Khan also in attendance.
While the finance minister and state minister have concurred on several points regarding budget amendments, the final verdict will await a meeting with Prime Minister Sheikh Hasina on May 14. Senior finance ministry officials, speaking under anonymity, revealed that discussions included a potential reduction in corporate tax for unlisted companies in the productive sector from 27.5 percent to 25 percent, contingent upon certain conditions.
The rationale behind this tax rate cut is to motivate companies towards greater tax compliance and transparency. However, it’s important to note that other corporate taxes are expected to remain static. The current financial year has already seen a conditional reduction in corporate tax to 27.5 percent, a notable decrease from the 35 percent rate in FY 2019-20.
To qualify for the corporate tax exemption, companies must meet two key criteria: banking all income and receipts over Tk 0.5 million and ensuring expenditures and investments above Tk 3.6 million per annum are conducted via bank transfer. Non-compliant companies will face a 30 percent tax rate.
Business associations have observed that despite the conditional reduction of corporate tax by up to 7.5 percent in recent fiscal years, many traders struggle to fully benefit due to stringent conditions. Consequently, there is a push to lower the effective corporate tax rate by relaxing these requirements.
It’s noteworthy that listed companies in the capital market enjoy a corporate tax rate of 20 percent if they have issued more than 10 percent of their paid-up capital in an IPO, while those issuing less face a rate of 22.5 percent. Unlisted companies are taxed at 27.5 percent, with single-person companies at 22.5 percent.
The financial sector sees varied rates with listed banks, insurance, and financial institutions taxed at 37.5 percent, and their unlisted counterparts at 40 percent, matching the rate for listed mobile phone companies. The highest corporate tax rate of 45 percent, plus a surcharge of 2.5 percent, is reserved for manufacturers of tobacco products.
As the government fine-tunes its fiscal strategies, the business community eagerly anticipates the potential benefits these tax reforms could bring to Cyprus’s economic landscape.
