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Differentiated approach to SME tax needed across South Asia

Policy mix for small and medium enterprises (SME) are incoherent across South Asia due to the various ways SMEs are defined by institutions that levy taxes, encourage investment, promote trade, provide credit and support to SMEs.

A broad consensus on sector-wise definitions for SMEs should be facilitated by public and private sector governing institutions for differentiated approach to levy tax on SMEs.

(left) Towfiqul Islam Khan,  Sabieh Haider, Ahsan Habib Mansur, M Syeduzzaman, Kazi Akram Uddin Ahmed and Mustafizur Rahman
(left) Towfiqul Islam Khan, Sabieh Haider, Ahsan Habib Mansur, M Syeduzzaman, Kazi Akram Uddin Ahmed, Syed Nasim Manzur and Mustafizur Rahman

The observations emerged from a dialogue on “SME Development in South Asia: How Conducive are the Tax Policies?” organised by CPD in collaboration with the Governance Institutes Network International (GINI) at the BRAC Centre Inn Auditorium on Thursday 23 April 2015.

CPD Executive Director Professor Mustafizur Rahman noted that the study covering Bangladesh, India, Pakistan, Nepal and Sri Lanka focused on the impacts of tax exemptions and concessions, VAT reforms, and property tax on the development of SMEs in South Asia.

Following a welcome remark from the Chair, Former Finance Minister Mr M Syeduzzaman, the keynote paper was presented by Mr Sabieh Haider, Manager, Research and Program Development, Governance Institutes Network International (GINI), Islamabad.

Mr Haider underscored that in absence of a standard definition for SMEs and lack of tax awareness, the SMEs struggle with cumbersome registration processes and medium to high compliance costs with their respective VAT regimes.

He recommended educating taxpayers on tax systems, making provisions for self-assessment of tax, transparent tax return calculation mechanism and improve the accessibility of tax administration’s service offices.

Resources

Regional Meta Analysis by Sabieh Haider

Bangladesh Study Findings by Towfiqul Islam Khan

Download relevant Reports

Press Reports on the event

Another keynote speaker CPD Research Fellow Mr Towfiqul Islam Khan presented the Bangladesh study findings on tax exemptions and concessions, vat and property tax. He 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.

Findings from the Indian part of the study was shared over skype by Mr Kaushik Bhadra, Research Associate, National Institute of Public Finance and Policy (NIPFP), India.

Discussant Dr Ahsan Habib Mansur, Executive Director, Policy Research Institute of Bangladesh, proposed to assess enterprises based on their turnover instead of number of employees to define SMEs. He added that the upcoming VAT law in Bangladesh intends to pay special attention to the SMEs and also lessen burden on the taxpayers through splitting the threshold mechanism into multiple levels.

Special Guest Mr Kazi Akram Uddin Ahmed, President, FBCCI informed of holding several meetings with NBR regarding taxation policies for SMEs in the upcoming budget as he considered the sector very important for employment generation in Bangladesh.

Another discussant Mr Syed Nasim Manzur, President, Metropolitan Chamber of Commerce and Industry (MCCI), highlighted a number of existing detrimental tax measures to business growth for SMEs in Bangladesh.

In the Floor Discussion, Dr Muhammad Abdul Mazid, Former NBR Chairman, said that all laws formulated for the elite taxpayers become burdensome for the majority of general taxpayers and it affects the SMEs.

Urging to formulate a common registration authority for vat, tax and tariff collection in Bangladesh, Former Advisor to Caretaker Government Dr A B Mirza Azizul Islam, advised further automation to minimise the tax payment time, hassles and reduce tax compliance cost.

Ms Begum Akhtar Jahan, MP informed of a number of tax exemption measures and incentives for taxation taken by the government in recent times. Mr Ranjan Kumar Bhowmik Director General, Tax Academy, proposed that compliance cost are being reduced through tax fair and electronic filing facilities.

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Advocating for multiple VAT rates, FBCCI Advisor Mr Manzur Ahmed informed that other regimes across the world do not have single VAT rate and in most cases special packages for SMEs beyond thresholds.

Among other issues, Ms Farah Farooq, Commercial Counsellor, High Commission of Pakistan High Commission said taxation structure in Pakistan do not really corroborate with the needs of the taxpayers. The government and tax collecting authority should explore ways to best educate the SME sector into using automated accounting system.

More observations and remarks were made by Dr Swapan Kumar Bala, CEO, Dhaka Stock Exchange Ltd and Professor of AIS, University of Dhaka; Dr Mizanur Rahman, Professor of Accounting & Information Systems, University of Dhaka; Mr Abdul Haque, Advisor of Japan Bangladesh Chamber of Commerce and Industry; Mr Md Aminur Rahman, Former Member, Income Tax Policy, NBR; Mr Kamran T Rahman, Former Vice President, MCCI; M S Siddiqui, CEO, Bangla Chemical and Mr Alison Subrata Baroi, Director, Shushashoner Jonney Procharavizan (SUPRO) among others.

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