Companies listed on the capital market are expected to face an additional 2.5% corporate tax in the next fiscal year unless they adopt cashless transactions – as the government plans to promote a cashless society.
Currently, listed companies with more than 10% free float shares in the capital market pay 20% in corporate tax. The government plans to increase this rate to 22.5% in the fiscal 2024-25, finance ministry officials told The Business Standard. Listed firms with free float up to 10% will see their corporate tax rate rise from the current 22.5% to 25%. However, the publicly traded companies will be able to enjoy their previous tax rates if they comply with the cashless transaction condition – meaning they keep their cash transactions within Tk36 lakh annually, the officials further explained.
For non-listed companies, which currently pay 27.5% corporate tax, the rate will be lowered by 2.5% if they comply with the condition of cashless transactions, according to officials with knowledge of the fiscal policy formulation. The same benefit will apply to one-person companies, meaning their corporate tax rate will be lowered by 2.5% to 20%, subject to fulfilling the conditions.
According to finance ministry officials, the National Board of Revenue (NBR) received a green signal on this matter from Prime Minister Sheikh Hasina during their budget meeting earlier this month. Finance Minister AH Mahmood Ali is expected to include the proposal in his budget presentation in parliament on 6 June, the officials added.
May discourage new firms entering market
Capital market experts, who have long been advocating for increasing the corporate tax rate gap between listed and non-listed companies, say the new move will discourage firms from entering the market. They also mentioned that it will narrow the benefit for listed companies to 5% from the current 7.5% in corporate tax.
Business leaders concerned
Business leaders have expressed their concern over the increase in corporate tax rates and the conditionally lowered rates, arguing that most companies will not be able to benefit from these incentives given the country’s economic conditions. By introducing such provisions, the NBR has been empowering its officials, potentially leading to increased harassment and creating new opportunities for corruption, they said.
Asking for anonymity, a tax expert said offering rewards may create opportunities to obtain benefits without complying with conditions, as tax officials have the authority to provide these benefits. However, Snehasish Barua, a partner at Snehasish Mahmud & Co, said the government may make this move to prevent misuse of benefits, as it will create a review process by deputy tax commissioners before granting them. The move will help promote a cashless society, he added, and will also contribute to expanding the formal economy.
Speaking with TBS, Dhaka Chamber of Commerce and Industry (DCCI) former president Rizwan Rahman said tax reductions should not be conditional, as most companies may not qualify for these benefits. “Paying taxes is a citizen’s responsibility,” he emphasised. He also expressed concerns that imposing conditions such as offloading more than 10% of shares to obtain a 250-basis point tax benefit would significantly impact the capital market.
Rizwan mentioned that it is impractical for large companies to meet the condition of cashless transactions or maintain an annual cash transaction limit of Tk36 lakh. He suggested that if government offices transitioned to cashless transactions, it would greatly facilitate the establishment of a cashless society, with the private sector likely to follow suit.
