A delegation of the Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI), headed by its President Mr Latifur Rahman met Thursday Chairman of the National Board of Revenue (NBR) Khairuzzaman Chowdhury and its members to discuss the chamber's proposals for the next budget of the government at the office of the NBR.
It was mentioned in the meeting that a crucial responsibility of the government in the coming fiscal "will be to consolidate the recent macroeconomic achievements and, at the same time, overcome the weaknesses that now confront the economy. Among the positive achievements, the economy can be said to have considerably overcome the recessionary trends of the past two-three years.
The macro-economy remains fairly stable, with the GDP growing at around 5.5 per cent. In the current fiscal year (FY 2005-06), the GDP growth forecast is above 6.0 per cent. The agriculture sector is likely to post a 4.0 percent growth. The manufacturing sector is projected to grow by above 8.0 percent. Export growth has accelerated the data for the first eight months showing a 19 per cent growth. Inward remittances have also shown a sustained increase during the past month."
Such positive features notwithstanding, the economy now faced serious challenges on a number of fronts, the MCCI delegation noted. "It is under a considerable strain because of the decline in investments, both public and private, growing trade deficit and rising inflation. On the fiscal front, the mobilisation of government revenue remains below target, but recurrent expenditures are growing faster. The implementation of public investment programmers under the Annual Development Programme (ADP) remains well below target. Because of the paucity of funds, a consequence of less-than-expected revenue collection and decline in aid inflows, the government is considering to slash down the current year's ADP by about 8.0 per cent."
It was observed in the meeting that it would be essential to maintain fiscal balance and macro-economic stability in order to sustain economic growth and achieve social improvements.
"The government will need to be prudent enough to cut down on revenue expenditure and gear up tax collection. The inflation rate, too, will need to be brought under control. In the interest of maintaining macroeconomic stability, excessive reliance on bank borrowing for financing the deficit in the coming fiscal will need to be brought under control. In the interest of maintaining macroeconomic stability, excessive reliance on bank borrowing for financing the deficit in the coming fiscal will need to be avoided", the MCCI leaders pointed out.
Earlier, the Chamber submitted 52 proposals concerning income tax, customs, value added tax (VAT) and supplementary duty for the next year budget.
The MCCI recommended for revising/reducing corporate tax rate regularly in accordance with the recommendations of the Taxation Reforms commission for better tax compliance.
According to the chamber, corporate tax rate in the country is higher. 'Besides, it becomes even higher when genuine expenditures are disallowed and expenditures are added to the income. It should be reduced and reduced gradually as per the recommendations of the Taxation Reforms Committee.'
About tax holiday, the MCCI said it is against withdrawal of the tax holiday scheme as it has established itself as the most popular tax incentive amongst the investors. Tax holiday, it added, must continue for another five years even if it is limited to certain sectors of industries. "This list should be flexible so that new industries where potentials are found may be included."
About investment of the provident fund and gratuity fund etc., the MCCI leaders pointed out that investment of such funds as per rule 49 was an out-dated and complicated process. Rule should be amended for investment of these funds in fixed deposit in the commercial banks, leasing companies etc., as the govt securities are not available for investments," it suggested.
Furthermore, the tax holiday companies though exempted from taxes for a certain period, nevertheless, they are to procure certificate annually from NBR to produce before commissioner customs for exemption of advance income tax (AIT) at import stage of raw materials, the MCCI noted. It suggested that AIT exemption certificate should be stated in tax holiday certificate while granting tax holiday to do away with harassment at import stage.
The chamber recommended that the list of industries eligible for tax holiday vide Finance Act, 2005 should be amended to contain agro-based companies. "Tax holiday for residential hotels should be given to four star and above hotels in place of three-star standard and above to attract investment including foreign investment under joint venture."
Besides, the MCCI suggested that the right of appeal (barred by section 81 (7)) for provisional assessment should be introduced by amendment of law to ensure natural right of justice as the provisional assessment attracts all provisional of regular assessment for recovery of taxes etc.
The Chamber recommended that surrender of the right of further appeal against orders of commissioner of tax in review cases should be withdrawn to do away with autocratic power of commissioner in review cases and also to ensure right of appeal as a fundamental right of a person.
The chamber suggested for three-tier structure customs duty -- at 2.5%, 7.5 & 20% for basic raw materials, intermediate raw materials and semi finished products and finished products respectively to help competitiveness of the local industries in view of emerging globalisation effect in the tax & tariff fronts.
The MCCI further reiterated its previous suggestion that surcharges, income tax, infrastructure surcharge and license fees, etc., should be reviewed to help improve competitiveness of local industries.
In this connection, it pointed out that for the inputs, the effective rate went up by more than 100% and in the case of finished products, the same increased by over 400% because of adverse imp[act of tax on tax.
The MCCI called for rationalisation of CRF issued by PSI & its acceptance by customs under specific guidelines to be formulated by NBR for observance both by customs and PSI for justifiable valuation for import consignments.
Furthermore, it suggested for removal of infrastructure surcharge (IDSC) noting that surcharge is a sort of tax on tax, it enhances cost of domestic products.
The chamber advocated for withdrawal of supplementary duty (SD) on milk at production stage at 2.5% to help domestic milk production.
Its suggested that the present rate of 20% SD in sugar should be lifted to encourage local agro-based industries using sugar as input.
The MCCI recommended for taking proper measures to improve the activities of duty drawback authority to reimburse claim on duty drawback scheme. It also suggested for withdrawing supplementary duty on dry cell battery, PVC rigid film, carbon rod etc.
To encourage milk production and consumption of milk and milk products by population specially children, these items should be Vat free, the chamber suggested.
Noting that export registration samples are also treated as exports the MCCI pleaded for not changing VAT on such items as export, of goods and services are VAT free.
The chamber suggested that like income tax appeals, the VAT appeal should be deemed to have been accepted on the date of filling.
Furthermore, the MCCI suggested that arbitrary price enhancement by divisional officer in price list proposal should be declared void and one-sided and enhancement of prices should be done away with.
Chamber pleaded for setting off of the input VAT on finished goods withdrawn from the market or warehouses for ultimate destruction be allowed.
It suggested for reduction of pre-payment amount payable for filing appeals to commissioner (appeal) and to Tribunal.
Pre-payment for appeal to commissioner (appeal) is 10% of VAT demand in place of earlier 5% and that for filing appeal before tribunal is 25% of VAT demand in place of earlier 10%, the chamber noted while recommending for the reduction of this rate of pre-payment for appeal.