organised in collaboration with the Governance Institutes Network International (GINI), the CPD dialogue on “SME Development in South Asia: How Conducive are the Tax Policies?” was held at the BRAC Centre Inn Auditorium on Thursday 23 April 2015.
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Published in The Financial Express
SME-friendly tax policies advocated
FE Report
Conducive tax-policies are needed for development of small and medium enterprises (SMEs) in South Asian countries including Bangladesh, speakers say at a regional dialogue.
They have suggested that the government frame tax policies keeping in view the present socio-economic context of the country.
The speakers urge the government to revise the existing high rate of corporate tax, consider reduction of VAT rates in the new law and keep provisions for multiple rates of VAT etc.
They also urge the government to facilitate growth of the SME sector with rational tax-policies to help the sector survive and compete in the international market.
The economists, experts, businessmen and former policymakers made the recommendations at a regional dialogue on ‘SME development in South Asia: How conducive are the tax policies?’ arranged by the Centre for Policy Dialogue (CPD) in collaboration with the Governance Institutes Network International (GINI) at the city’s BRAC Centre on Thursday.
M Syeduzzaman, former finance minister and member of CPD board of trustees, chaired the session while CPD Executive Director Dr Mustafizur Rahman, Towfiqul islam Khan, CPD research fellow, Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) president Kazi Akram Uddin Ahmed, former adviser to caretaker government Dr Mirza Azizul Islam, Chittagong Stock Exchange (CSE) chairman Dr Abdul Mazid and Dhaka Stock Exchange (DSE) Chief Executive Officer (CEO) Dr Swapan Kumar Bala, among others, spoke at the dialogue.
Two distinguished discussants at the dialogue were Dr Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (PRI) and Syed Nasim Manzur, president of the Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI).
Sabieh Haider, research manager of GINI and coordinator of the “regional meta-analysis report: South Asia’ presented a brief on the country-specific recommendations on tax policies and enterprise development in Bangladesh, India, Pakistan, Nepal and Sri Lanka.
Dr Ahsan H Mansur said the small enterprises need special attention but VAT is an account-based system that is usually imposed on enterprises’ financial characteristics.
He said the new VAT law has two thresholds-one for full exemption and another one on the basis of turnover of companies.
“There is enormous untapped potentiality in VAT collection that remained unrealised. Major overhauling is needed to facilitate VAT payers and end their hassle,” he said.
Nasim Manzur said the tax-law should be framed making it user-friendly, as many of the detrimental issues including minimum tax on companies, tax on distributors are affecting the industry.
He suggested incentivising the taxpayers on early submission of tax returns.
Mirza Aziz said fiscal incentives play a minor role in investment as other issues including political stability, access to land, transparency etc are more important.
“Present tax regime is not a serious impediment to investment and growth,” he said.
He suggested that the government adopt a common and uniform definition of SME that all the registering authorities would follow and initiate coordinated action to detect non-compliance.
Dr Aziz also laid emphasis on linking up SMEs with large industries to support the small entrepreneurs with technology and sale of goods.
FBCCI adviser Manzur Ahmed said the SMEs need support to compete with imported goods.
He said the many countries have multiple rates of VAT that could be adopted under the new VAT law.
FBCCI income tax subcommittee convener Humayun Kabir said there must be a study on effective tax rate as it would be above 60 per cent for the listed companies.
On property tax, he said capital formation would be discouraged and there might be flight of capital with imposition of this tax. “It must be clarified whether it would be tax on property, land or wealth,” he said.
Dr Abdul Mazid said link-up between small and large taxpayers is needed as tax is being imposed on existing large taxpayers.
FBCCI president Kazi Akram said the SME sector cannot approach the government due to their limited access, although their employment generation is high.
To conclude the dialogue, M Syeduzzaman said light engineering industries are accounting for 35 per cent of the total industrial contribution to the GDP in Bangladesh.
About 40,000 industries across the country employ 6.5 million people, have an annual turnover of Tk 150 billion (15,000 crore) and growing 15 to 20 per cent a year, he said.
“This indicates how an efficient and rational tax structure for the SMEs can generate a significant amount of revenue,” he said.
He suggested export benefits, training facility, separate industrial parks and subsidised power for the SME sector.
He said efforts should be made to identify the best practices in the context of South Asian countries for the benefits of other countries.
At the programme, the private think-tank unveiled findings of a study conducted on Bangladesh tax policy and enterprise development.
The study has been conducted under three themes-tax exemptions and concessions, Value Added Tax (VAT) and property tax.
About 262 enterprises were surveyed in Bogra, Dhaka, Chittagong and Narsingdi. The study says some 96 per cent enterprises were either direct or indirect taxpayers.
While presenting the study findings, Towfiqul Islam Khan, research fellow of CPD, said the enterprises were paying some sort of tax.
The study found the overall perception and experience as regards tax rather unsatisfactory.
“Some 80 per cent either strongly or moderately agreed that structure of tax was not favourable for businesses as there are numerous types of taxes and procedural complexities,” he said.
High cost of compliance and lack of willingness of the firms are found as major impediments to the general tax behaviour, the findings say.
The study also reveals about 78 per cent firms do not enjoy significant benefits due to biasness in tax exemption and concessions which impact on their performance.
The survey report has recommended simplifying the taxation system for SMEs, access to easy loan, low interest credit, access to land and tax-benefits in the form of tax holiday, tax concessions and exemption.
When it comes to VAT compliance, the survey found many of the enterprises had no clear idea about the new VAT law, to be implemented from July 1, 2016.
“The forthcoming new VAT regime needs to recognise SMEs with an explicit definition in the VAT law. There should be SME-related special provisions in a clear and well-articulated manner,” the CPD said.
In the event of property tax, the study found the enterprises recommended that the tax authority find out location-specific transaction value of various real-estate properties, enhance administrative capacity and streamline record-keeping.
“Property tax compliance cost is not burdensome, unless the possibility is there of double taxation from dual administration,” it says.
Published in The Daily Star
Tax real value of property: CPD
Star Business Report
Tax authorities should find ways to collect property taxes by considering the actual transaction value of the assets, according to a study by the Centre for Policy Dialogue (CPD).
Property taxes on the actual transaction value will help the tax administrator receive more revenue, and the government is already planning to reintroduce property taxes.
In Bangladesh, the official land price list is not updated regularly and prices are shown lower than the actual transaction prices only to dodge tax and fees, according to the CPD study unveiled at a programme in Dhaka yesterday.
“Tax officials may find out the location specifics, real transaction value of real estate at regular intervals and update it regularly,” said Towfiqul Islam Khan, research fellow of CPD, while presenting the findings.
Property tax rates are low in Bangladesh and are collected in the form of ‘land tax’ or ‘holding tax’, according to the study.
Ahsan H Mansur, executive director of Policy Research Institute, said property tax is an untapped potential for Bangladesh. “A major overhaul in this area is needed.”
The money collected from property taxes should go to the local government for development, he added.
The CPD in collaboration with Governance Institutes Network International (GINI) organised the dialogue on ‘SME development in South Asia: how conducive are the tax policies?’
M Syeduzzaman, former finance minister and a member of the CPD’s trustee board, moderated the discussion.
Speakers at the dialogue said the forthcoming VAT (value added tax) policy should be friendly to small and medium enterprises to boost the thrust sector.
They also recommended setting a unique definition for SMEs, considering its financial criteria, instead of the number of employees.
“The tax law cannot be a burden on the SMEs,” Mansur said, emphasising a balanced relationship between SMEs and taxation policies.
There should be a standard threshold mechanism to determine the SMEs. “The definition criteria should be based on a small enterprise’s turnover, not by the number of its employees,” he said.
He also suggested the government automate the VAT registration system and introduce electronic payment systems to avoid hassles and unauthorised intervention of tax officials.
Kazi Akram Uddin Ahmed, president of Federation of Bangladesh Chambers of Commerce and Industry, said he is confused by the upcoming VAT policy, especially on the issue of SMEs.
“I am fighting with the finance minister on VAT policies related to SMEs,” he said, recommending the introduction of multiple tax and VAT rates, as per the capacity of taxpayers.
Syed Nasim Manzur, president of Metropolitan Chamber of Commerce and Industry, said there are too many tax laws that are complicated and detrimental to SMEs.
Citing the provision of 0.3 percent tax on sales receipts, he said there should not be any tax on sales receipts as it is not an income or profit.
He also advised the government to provide tax incentives for those who will submit tax returns much earlier than the scheduled time.
Abdul Mazid, a former chairman of National Board of Revenue, also agreed that a single VAT rate is not appropriate. “The VAT rate should be different for different sectors of the economy.”
Mirza Azizul Islam, a former adviser to a caretaker government, said the tax-GDP ratio in Bangladesh is the lowest in South Asia and one of the lowest in the world. He however said the tax regime is not a serious impediment to investment. “Land availability, infrastructure, political stability and access to finance are the key factors for investment.”
Presenting the Bangladesh study findings on ‘tax policy and enterprise development in South Asia: Bangladesh study findings’, Khan of CPD said 70 percent of the surveyed firms are not interested in getting tax benefits, mainly to avoid hassles and the high costs related to compliance requirements.
The SMEs are not sincere about tax payment and compliance, as there is a lack of government initiative, he added.
Presenting a keynote paper on ‘tax policy and enterprise development in South Asia: regional meta analysis’, Sabieh Haider, research and development manager of GINI, said a broad consensus can be built to harmonise the sector-wise definitions of SMEs by public and private sector governing institutions.
Published in New Age
Complex procedure, fear of harassment hold back half of SMEs from paying VAT
Staff Correspondent
Almost half of small and medium enterprises in the country are non-compliant in terms of paying value-added tax mainly because of procedural and legal complexity, absence of benefits, lack of awareness and fear of possible harassment in future, according to a survey conducted by the Centre for Policy Dialogue.
‘Only 54 per cent of SMEs are registered with the VAT authorities and pay VAT while the remaining are not registered,’ the survey report released at a regional dialogue on Thursday revealed.
The CPD and Pakistan-based research organisation the Governance Institutes Network International organised the dialogue on the tax policy and enterprise development in South Asia held at BRAC Centre Inn in Dhaka.
The report recommended that the government should update the location specific real transaction value of various real estate properties at a regular interval to prevent avoidance of property tax which is collected in the forms of holding tax and land tax.
Seven research organisations from South Asia conducted separate studies in Bangladesh, India, Pakistan, Sri Lanka and Nepal on the issue.
In India, 90 per cent of firms pay VAT which is 51 per cent in Pakistan and 45 per cent in Nepal, the report said.
Speakers at the dialogue recommended that the government should pay more attention on developing SMEs and ensuring SME-friendly tax environment considering its role in economy and employment generation.
They said that the government should introduce multiple VAT system at different rates for different sectors.
Adviser to the former caretaker government Mirza Azizul Islam said that VAT rate should be lower instead of single 15 per cent in the country and SMEs should be linked up with large firms for greater market access.
Metropolitan Chamber of Commerce and Industry president Syed Nasim Manzur criticized some of the findings such as perception on getting VAT rebate by businesses saying that the result did not reflect the actual situation in the country.
Policy Research Institute executive director Ahsan H Mansur advocated for introducing single VAT rate at 15 per cent.
Former chairman of the NBR Abdul Mazid said that the government would have to increase tax-GDP ratio to improve overall investment scenario.
FBCCI adviser Monzur Ahmed criticized the government for introducing single VAT rate at 15 per cent in line with the prescription of the International Monetary Fund.
He also said that many provisions of the tax laws were not fair for SMEs while taxmen were not taxpayer-friendly.
According to the findings of the study carried out on 262 enterprises, of which 223 are from SMEs sector and the remaining are large scale enterprises in Bangladesh, 50 per cent entrepreneurs of Bangladesh strongly agreed that tax laws and procedures were too complicated.
Around 80 per cent of the respondents either strongly or moderately agreed that the structure of overall taxation was not favorable for businesses.
An entrepreneur from SME sector has to annually spend Tk 3,000 as compliance cost while for capital intensive SMEs the cost is Tk 20,000 per month, it said.
Regarding property tax in Bangladesh, the report found that the rate of property taxes, which are collected in forms of land tax and holding tax, is very low in the country and the level of compliance is also considerably low.
According to the report, the official land price list is not updated regularly while people showed lower price of real estate property in transaction compared to the actual price to evade taxes and fees.
At the dialogue, former finance minister M Syeduzzaman, CPD executive director Mustafizur Rahman, the Federation of Bangladesh Chambers of Commerce and Industry president Kazi Akram Uddin Ahmed, among others, spoke.
CPD senior research fellow Towfiqul Islam Khan and GINI research manager Sabieh Haider presented two papers on the report findings.
Published in The Independent
Unfavourable tax policy hampers SME growth: Experts
Staff Reporter
The policies across South Asia for SME are confusing because of its (SME) diverse definition given by the institutions that encourage investment, promote trade, levy taxes, provide credit and support to the sector, said experts. The experts came up with the observations at the dialogue titled ‘SME Development in South Asia: How Conducive are the Tax Policies?’ organised by Centre for Policy Dialogue (CPD) in collaboration with Governance Institutes Network International (GINI) at BRAC Centre Inn in the capital yesterday.
Presenting the keynote paper, research and programme development manager of GINI Sabieh Haider said in the absence of a standard definition for SMEs and lack of tax awareness, the sector struggles with troublesome 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 improvement of the accessibility of tax administration’ s service offices.
Mirza Azizul Islam said tax rate in Bangladesh is one of the lowest in the world but the enterprises are not willing to pay tax due to avoid hassles. VAT registration authority needs to be friendly and coordinated to minimise complicacy. NBR should link up with SME with large enterprises.
Muhammad Abdul Mazid, former chairman of NBR, said there are segregated rules for the high enterprises and for the small and medium enterprises which puts burden on the SMEs.
“Our tax GDP ratio should have 16 per cent but we have only 10 per cent while complicated tax system is the main reason behind the deficit budget. We need to focus on the simplification of the tax payment process” added former chairman of NBR.
Ahsan Habib Monsur, executive director of Policy Research Institute (PRI) said a new amended tax law is needed to reduce the complicacy in the system. In addition, automation of tax system and taxpayer education system could reduce unauthorised tax, he added.
Syed Nasim Manzur, president of Metropolitan Chamber of Commerce and Industry (MCCI), said existing tax laws are complicated and tax administration needs to be user friendly.
“Tax on gross profit is detrimental for SMEs, which is also discouraging for the new people to come under the tax bracket. The people who pay tax return early should get incentive to encourage others” opined Manzur.
Kazi Akram Uddin Ahmed said he held several meetings with NBR regarding taxation policies for SMEs in the upcoming budget as he considers the sector very important for employment generation in Bangladesh.
Findings from the Indian part of the study were shared over skype by Kaushik Bhadra, research associate, National Institute of Public Finance and Policy (NIPFP), India.
Policy Research Institute of Bangladesh executive director Dr Ahsan Habib Mansur and Metropolitan Chamber of Commerce and Industry (MCCI) Syed Nasim Manzur also spoke at the programme.
Published in UNB
Unfavourable tax policy hampers SME growth: Experts
UNB
Experts at a dialogue here has said the policies across South Asia for SME are confusing because of its (SME) diverse definition given by the institutions that encourage investment, promote trade, levy taxes, provide credit and support to the sector.
The experts came up with the observations at the dialogue titled ‘SME Development in South Asia: How Conducive are the Tax Policies?’ organised by Centre for Policy Dialogue (CPD) in collaboration with Governance Institutes Network International (GINI) at BRAC Centre Inn in the capital on Thursday.
Presenting the keynote paper, research and programme development manager of GINI Sabieh Haider said in the absence of a standard definition for SMEs and lack of tax awareness, the sector struggles with troublesome 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 improvement of the accessibility of tax administration’s service offices.
Speaking at the programme, CPD executive director Prof 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.
CPD research fellow Towfiqul Islam Khan suggested tax officials to assess actual transaction value of real estate properties and improve tax administration human resources and record keeping using digital mapping of land.
President of Federation of Bangladesh Chambers of Commerce and Industries (FBCCI) Kazi Akram Uddin Ahmed said he held several meetings with NBR regarding taxation policies for SMEs in the upcoming budget as he considers the sector very important for employment generation in Bangladesh.
Findings from the Indian part of the study were shared over skype by Kaushik Bhadra, research associate, National Institute of Public Finance and Policy (NIPFP), India.
Policy Research Institute of Bangladesh executive director Dr Ahsan Habib Mansur and Metropolitan Chamber of Commerce and Industry (MCCI) Syed Nasim Manzur also spoke at the programme.