‘High corporate tax for banks, insurers, telcos illogical’

High corporate taxes on banks, non-bank financial institutions, merchant banks, insurance companies and telecommunication companies are not logical as their profit is not high compared to capital, said Shahidul Islam, chief executive officer of VIPB Asset Management Company.

Asset management companies collect funds from investors and corporates and invest them in the capital and money markets.

The government reduced corporate tax for the listed and non-listed companies by 2.5 percentage points in the current fiscal year.

"The move was good. But the corporate tax rate for financial institutions and telecommunication companies has remained unchanged. The rate is very high for them."

Currently, the corporate tax rate for listed companies is 20 per cent while it is 27.5 per cent for non-listed companies. These rates are not applicable for banks, insurance companies, NBFIs and telecommunication and tobacco companies.

The tax rate for listed banks, insurance companies and NBFIs is 37.5 per cent. It is 40 per cent for the non-listed firms in the same categories. The rate is 45 per cent for telecommunication companies and tobacco companies.

"The corporate tax for the companies needs to be reduced because such a huge gap is not expected," Islam said.

He explained banks, NBFIs, merchant banks, and insurance companies face huge competition while making profits. Though their profit figure looks big, it is low compared to their invested capital.

If companies' profit compared to their capital remains low, the share price does not rise and companies can't raise funds. As a result, their lending capacity does not broaden, said Islam.

The number of companies in the telecommunication sector of Bangladesh is only four, but Islam said they are competitive.

According to Islam, through the 2.5 percentage points reduction in corporate tax, the government has tried to create a level-playing field for the companies that follow good governance in a country where tax evasion is widespread.

But Islam also thinks instead of cutting taxes, the government needs to ensure tax compliance in a bid to establish a fully level-playing field.

He called for widening the tax rate gap between the listed and non-listed companies from the current 7.5 percentage points by bringing it down further for the firms that have gone public.

"This is because a listed company is transparent and accountable and tax evasion tendency is low among them whereas it is high among the non-listed companies."