The proposed 1.5 percent tax at source on export is 'absurd' and 'abnormal' as such a high rate might hamper the growth of local industries and overseas shipments, business leaders said yesterday.

If the source tax on export is fixed at 1.5 percent, it should be imposed on the profits made from the shipments and not from the entire receipts from them, said Shafiul Islam Mohiuddin, vice-president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

“Both industrial and export growth will face severe challenges if the proposed tax at source is finalised on exports,” he said in the apex trade body's reactions to the proposed budget for fiscal 2016-17.

Businesspeople, especially garment exporters, have been demanding a reduction in source tax to 0.3 percent from the current 0.6 percent. But Finance Minister AMA Muhith has now proposed a 1.5 percent source tax on all kinds of exports.

At a separate press conference, Siddiqur Rahman, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said the 1.5 percent source tax goes against the government's industrial policy.

“Our view is that if the proposed source tax on export, especially on the garment sector, is fixed, the industry will not flourish properly and new investment will hardly come in,” he said.

FBCCI President Abdul Matlub Ahmad said small and medium enterprises, like the growing local motorcycle industry, would face stiff competition as the supplementary duty on a good number of imported products is set to be withdrawn.

The government might face challenges in VAT collection as Muhith proposed doubling the amount of package VAT.

Ahmad, however, said the FBCCI will give its formal reactions to the proposed budget on June 8 or 9 as they are not prepared yet.

The BGMEA chief welcomed the proposal to slash the corporate tax rate for the garment sector to 20 percent from 35 percent.

He also hailed the Tk 4,500 crore incentive package for exporters, the continuation of concession on import of capital machinery and duty-free import of fire fighting equipment and pre-fabricated building materials.

In its reaction, the Metropolitan Chamber of Commerce and Industry (MCCI) said attaining the increased revenue target will be a major challenge for the government.

“Tax compliant enterprises should not be excessively burdened. Instead, new avenues of tax collection should be identified and pursued.”

The government should also set targets for tax officials and reward them for enrolling new taxpayers.

“We are disappointed that no measures have been proposed to ease the current gas crisis. We urge that businesses suffering from low gas pressure be exempted from the minimum charge.”

The chamber also demanded that the savings from lower import payment for petroleum products be immediately passed on to consumers at all levels.

The MCCI was disappointed that the tax-free threshold for individual's income has not been increased and that the highest rate for tax for individuals remains unchanged at 30 percent.

The chamber, however, welcomed the proposal of implementing the new VAT law from July next year instead of this July due to a lack of necessary preparation.

“We would like to draw the attention of the finance minister to our extensive comments given earlier on the VAT Act and VAT Rules and trust that this will be taken into account so that the laws are fair and equitable between the interest of the revenue and taxpayers,” it added.

Hossain Khaled, president of Dhaka Chamber of Commerce and Industry, appreciated the proposal to continue with package VAT for the next one year.

Foreign Investors' Chamber of Commerce and Industry said the economic growth target of 7.2 percent is achievable provided that the investment-GDP ratio increases to a desired level.

FICCI also appreciated an increase in the allocation for education, social security and welfare programmes including the widening of social safety net, saying the measures will mitigate extreme poverty situation.

However, the reduction in the allocation for agriculture and health will be detrimental to the desired socio-economic impact in the economy, FICCI said in a statement.    

The chamber also urged the government for corporate tax rate cuts and it said the scope of whitening black money is highly discouraging for honest taxpayers.

The International Business Forum of Bangladesh said it is praiseworthy that priorities were given to infrastructural development, including physical infrastructure, and initiatives for separate monitoring for mega development projects were also taken.

“But since the implementation of the Annual Development Programme in the past was not satisfactory, the government should give special emphasis to appropriate implementation of development projects in the days ahead.”

The fixed-income and general middle-class groups would have been much more benefitted had the individual tax ceiling been raised from Tk 2.50 lakh to Tk 3 lakh, it added.

The Chittagong Chamber of Commerce and Industry urged the government to complete the construction of the 16.5-kilometre expressway in Chittagong quickly.

The chamber said the proposal to increase VAT on transportation of petroleum products to 4.5 percent from 2.25 percent would increase the burden on common people.