Small and medium enterprises are getting less tax benefit and concession compared to the large enterprises, putting a lid on the growth of SME business.
The report states the SMEs are deprived of tax-related benefits which could help the firms reduce production cost and become competitive both locally and globally.
The survey was conducted by Centre for Policy Dialogue (CPD), which found around 78% of Bangladeshi firms do not enjoy significant benefits of tax exemptions and concessions.
The survey covered 262 enterprises, of them 223 are SMEs and 39 LSEs (large size enterprises), in four districts—Bogra, Dhaka, Chittagong and Narshingdi.
CPD research fellow Towfiqul Islam Khan presented the “Bangladesh study” findings on tax exemptions and concessions, Vat and property tax at a dialogue on “SME Development in South Asia: How Conducive are the Tax Policies?”
CPD in collaboration with the Governance Institutes Network International (GINI) organised the event at the BRAC Centre Inn in Dhaka.
It found that SMEs are facing biased treatment in terms of tax exemptions and concessions, which impact on the firms’ performance.
“Biased treatment against SMEs may be found in case of getting access to various kinds of financial and non-financial benefits.”
The survey said around 47% of the surveyed SMEs got exemption only on Vat (in the form of package Vat).
About firms characteristics, some 50% of the SMEs have trade licence and more than 80% of SMEs were sole proprietorship-based enterprise, while for LSEs partnership-based firms were more frequent.
Assets and turnover are disproportionately skewed towards LSEs, as more than 50% of the surveyed firms have capital investment below Tk5 lakh and average capital investment of the LSEs is Tk3.65 crore.
About 66.5% of the surveyed SMEs received commercial loans from formal channels, 7.7% from cooperatives and 16.5% from money lenders. Besides, 80.6% of LSEs availed of credit through formal lines.
Some 70% of the surveyed firms are not interested in getting tax benefits due mainly to avoid hassles and high costs related to compliance requirements.
The study recommended tax officials to assess real transaction value of real estate properties and improve tax administration human resources and record keeping using digital mapping of land.
“If we want to take care of SMEs, threshold mechanism is needed but not by definition and not by number of staff to realise tax,” said Policy Research Institute executive director Ahsan H Mansur.
Putting importance on simplification of Vat system, he said all were not much aware that how much sale will be at the end of the day.
Threshold criteria should be on imposing tax on turnover as turnover tax does not require anything else. “Nothing is simpler method than this.”
Former NBR chairman Abdul Mazid said among taxpayers in the country, 90% are big taxpayers and 10% general taxpayers. But the problem is when any law is made, those big tax players have influence but general taxpayers can not fight back. “This problem needs to be addressed.”
Opposing the idea of the proposed single-Vat rate in the new Vat law to be effective soon, Majid said multiple Vat rate should be introduced as the country’s economy is divided in three or four segments.
Ex-finance adviser to a caretaker government Mirza Azizul Islam said: “What we need most is to link up SMEs with LSEs because LSEs can ensure marketing of SMEs and provide technological support.”
Metropolitan Chamber of Commerce and Industry president Syed Nasim Manzur said, “Too many tax-related rules are complicated and these laws are detrimental to the business growth, even for SMEs. Minimum tax law says business has to pay 0.3% income tax on gross recite which does not equate income or profit.”
Former finance minister M Syeduzzaman, CPD executive director Professor Mustafizur Rahman and FBCCI president AKM Akram Uddin were also present at the event.
Manager at Research and Program Development, Governance Institutes Network International (GINI), Islamabad, Sabieh Haider presented the keynote paper on a study covering Bangladesh, India, Pakistan, Nepal and Sri Lanka.
The study focused on the impacts of tax exemptions and concessions, Vat reforms, and property tax on the development of SMEs in South Asia.
Analysts, however, opposed some portions of the study, particularly on Bangladesh.
Source: The Daily Dhaka Tribune