The National Board of Revenue has not extended the reduced income tax rate facility for the readymade garment exporting industry in a bid to check tax evasion through shifting profit from other industries to export earnings, officials concerned said.
Taking the advantage of reduced tax rate, the RMG exporters used to show their income from other businesses as income of export earnings to evade taxes as income from other businesses are supposed to tax at regular rate which is now 35 per cent, they said.
There was a scope of showing much profit from export earnings because of annual income calculation system for RMG exporters by the taxmen, the officials said.
They could also legalise their untaxed money in the process, they said.
Till the last financial year 2013-14, the tax at source for apparel item exporters was 0.80 per cent on their export proceeds which was considered as final settlement under some conditions, according to a statutory regulatory order issued by the NBR in 2005.
The conditions include that the revenue board will calculate their total income assuming that RMG products exporting companies paid tax at the rate of 10 per cent and their other income will be taxed at the regular rate for companies at 35 per cent.
The SRO expired in June 30, 2014.
Bangladesh Exporters Association president Abdus Salam Murshedy told New Age on Monday that the decision not to extend the tax facility would affect the RMG sector and sector leaders would urge the government to reconsider the matter.
‘The government reduced tax at source to 0.30 per cent in a bid to increase competitiveness of the sector in the international market. Now, if the government increases the tax rate, that will foil the benefit of reduction of source tax,’ he said.
Bangladesh Knitwear Manufacturers and Exporters Association vice-president Mohammad Hatem said the measure would decrease the amount of the legalised money for investment which would hamper new investment.
He said most of the RMG entrepreneurs were struggling in making profit due to increase of expenditure. There may be a few businessmen who can take the advantage of showing more profit or shifting profit from other businesses to export-oriented RMG sector, Hatem added.
He said many taxmen showed less interest in considering the source tax as final settlement and demanded for ending of such harassment.
Currently, the tax at source on RMG export proceeds is 0.30 per cent while the applicable company tax rate is 35 per cent as the revenue board did not extend the facility following allegations of shifting profits from other businesses to export-oriented industries.
A senior NBR official said in earlier tax calculation system, an RMG exporter could show his income from export 10 times more than his actual earnings which will be reduced by less than three times.
For example, profit of an exporter would stand at Tk 2.29 from export of Tk 100 when the tax at source was 0.80 per cent. But he could show his profit at Tk 8 as his income would calculate considering the paid tax at 10 per cent.
Now the same exporter will be able to show his profit at Tk 0.86 from export of products worth Tk 100 as the tax at source was reduced to 0.30 per cent and corporate tax rate restored to 35 per cent, he said.
‘If anyone shows his profit more than that he will have to pay tax at 35 per cent for additional profit,’ the official said, adding that the provision became applicable from July 1, 2014.
-With New Age input
