Tax on reserve to hit cos’ business expansion: ICAB

Staff Correspondent | Published: 00:20, Jun 16,2019

 
 

The imposition of 15 per cent tax on reserve and retained earnings of listed companies will reduce capital and expansion scope of the companies, said the Institute of Chartered Accountants of Bangladesh on Saturday.

The ICAB made the statement in its post-budget review.

Finance minister AHM Mustafa Kamal placed the national budget for the 2019-20 fiscal year before parliament on Thursday.

The government has proposed 15 per cent tax on retained earnings and reserve if the figures exceed 50 per cent of the paid-up capital of a listed company.

If a company has Tk 2 lakh in paid-up capital with Tk 4 lakh retained earnings and Tk 1 lakh reserve, the company must pay additional Tk 30,000 in tax.

The ICAB feared that the tax imposition would reduce capital of a company and would also narrow its business expansion scope.

The government has also imposed tax on the value of stock dividend at the rate of 15 per cent, which will be collected from the listed companies within sixty days of such dividend declaration.

The move will encourage the listed companies to issue cash dividend and increase the government’s tax collection, the ICAB said.

ICAB president AF Nesaruddin told New Age that the tax imposition on stock dividend and retained earnings and reserve was unprecedented, irrational and against the business norms.

If a company witnesses losses in the next few years, then how it could run its business or announce dividend if it does not have enough reserve, he said.

Reserve increases capability of a company and provides comport during its financial crisis, he said.

The companies pay taxes on their revenue, so tax on the reserve and retained earnings would be double taxation, he said.

If any errant company reserves huge amount of funds and declares stock dividends without any justified reason, the market regulators are there to take actions, Nesaruddin said.

Person or the authority responsible for effecting the share transfer must not approve the transfer unless tax is paid on capital gain arisen due to such share transfer to non-resident company. The integration will increase tax collection and compliance, the ICAB said.

The National Board of Revenue may issue a certificate to avail the benefit of tax treaty within thirty days of the receipt date of application.

No major change has been proposed in the area of corporate tax.

The ICAB said the government’s tax collection did not drop in 2014-15 when the rate was reduced to 35 per cent from 37.5 per cent.

It said cost of legalising undisclosed income would decrease as tax at 10 per cent would be paid on the sum invested in any economic zone or in any high-tech park.

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