Saudi riyal, yuan, Turkish lira, pound, US dollar, euro and Jordanian dinar banknotes are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration
Bangladesh has put favourable policies in place to encourage new businesses and attract foreign direct investment, but ambiguities in tax-related provisions stand in the way of capital inflow, PwC says.
In its budget proposals compiled in Bangladesh Pre-Budget Memorandum 2023, the global accounting and consulting firm calls for changes and clarifications in the existing provisions to help businesses enjoy the tax benefits offered to them and contribute more to the economy.
The cap on promotional expenses, 0.5% of business turnover, is one of the issues which result in higher effective tax rate and reduced profitability, hindering growth and acting as a deterrent to the much-needed impetus to foreign direct investment, it identifies.
PricewaterhouseCoopers (PwC) Bangladesh has prepared the pre-budget memorandum to submit to the National Board of Revenue.
It has felt the need for simplified procedures for corporate restructuring as Bangladesh, considered as one of the fastest-growing economies in the world in the last couple of years, has witnessed an increasing trend of foreign investment in domestic companies.
This has led to corporate restructuring of businesses to attract foreign investments, but the existing provisions of the Income-tax Ordinance expose business reorganisations to major tax incidence in transfer of assets between holding companies and their local subsidiaries.
PwC recommends introduction of the globally accepted tax norms on business reorganisation like demergers and transfer of assets.
“The concept of tax-neutral demerger is prevalent in most developing as well as developed economies worldwide,” it says.
But, in Bangladesh, there are no provisions in the Ordinance to allow tax-neutral demerger of businesses and transfer of capital assets from a holding company to its subsidiary or vice-versa, it notes, hoping that such provisions will attract more foreign investments and facilitate foreign companies to contribute more to the economy.
“To boost investments in the Bangladesh economy, it is recommended to provide exemption in respect of the conversion of convertible securities into equity,” reads the PwC memorandum to be placed to the National Board of Revenue (NBR).
It also highlights the problems in smooth succession of family business and wealth to the next generation to maintain peace and harmony among family members and ensure growth and longevity of the business.