The Foreign Investors’ Chamber of Commerce and Industry has demanded withdrawal of the proposed cap on the companies’ promotional expenses, claiming that it would significantly increase the effective corporate tax on companies and reduce the investors’ income.
Finance minister AHM Mustafa Kamal in the national budget for the fiscal year 2020-2021 proposed putting a limit on tax-free promotional expenses at 0.5 per cent of disclosed turnover of a company.
Currently, there is no limit on such expense and entire promotional expense of a company is considered as allowable expense for exclusion of taxable income.
He also proposed to reduce the corporate income tax rate to 32.5 per cent from existing 35 per cent.
The FICCI on June 17 in separate letters to finance minister and the National Board of Revenue claimed that the effective tax rate might go up by 6 per cent to 36 per cent considering the profit level ranging from 5 per cent to 30 per cent of accompany if the new provision was passed.
Fast moving consumer goods (FMCG) and similar industry spend around 5 per cent and 10 per cent of turnover as promotional expenses which has been established locally and internationally as one of the key drivers of consumer goods sales, it said.
Such provision will give a wrong signal to potential foreign direct investors as this will increase the effective tax rate significantly and FDI will be very unattractive in the country, it claimed.
More than 90 per cent of promotional activities will also be reduced hindering businesses growth and a large number of employed people in the sector engaged in promotion of goods will lose jobs, it added.
‘The new provision should be removed and all legitimate promotional expenses should be considered as allowable expenses,’ the FICCI said in the letters.
The trade body also sought a revision to the provision that has allowed undisclosed money investment saying that allowing such money to be deposited in the banking channel might contradict with prevailing Anti-Money Laundering (AML) guidelines and this would also adversely affect the banks’ risk rating by international banks and might affect international trade.
The platform of foreign investors also demanded withdrawal of the minimum tax on companies or making the provision uniform and consistent for all types of businesses, instead of focusing on some specific sectors, including those with large foreign investment.
Earlier, the Institute of Chartered Accountants of Bangladesh in its budget analysis said that the capping the promotional expense would increase the effective tax rate on a company.
In the analysis, ICAB member and partner of a chartered accountants firm Snehasish Mahmud and co-partner Snehasish Barua said the setting of a limit on expense would hinder the promotional activities by a company for its products and services and would increase effective tax on the company.
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