AMID the government’s plan to lower corporate tax to boost private investment the Centre for Policy Dialogue – an economic research think-tank – has opined that the move would not necessarily trigger a positive impact.
The corporate tax rate in Bangladesh now ranges from 27.5 percent to 45 percent, and the Finance Minister and the Chairman of the National Board of Revenue have already indicated that it would be lowered in the budget for fiscal 2014-15. The rationale behind the plan to lower corporate tax is that it is very high in comparison to other Asian countries. However, CPD has debunked this claim. The average corporate tax rate in Bangladesh is one of the lowest in South Asia, which is close to the average corporate tax of Southeast Asian countries, according to the think-tank.
Moreover, we cannot understand why this comparative analysis comes into play while a positive increase in investment is expected. CPD’s research shows that the argument that a lowering of the corporate tax will have a positive impact on private investment is not robust. This is because the corporate sector is overtly dependent on debt-based financing for investment to which a tax cut would have little effect, if any.
Furthermore, when political uncertainty is at a peak and the economy is stumbling because of a feeble infrastructure what miracle a corporate tax cut could do is not quite understandable from an economist’s point of view. And hence, if supportive measures such as a business-friendly environment and supportive infrastructure are not ensured, then lowering of corporate tax rate will likely have only a limited impact on investment.
On top of all, the country is in the grip of prolonged political impasse and instability with a government that suffers from the question of legitimacy following the January 05 voter less election. As such, there is a serious confidence gap in the investor’s circle.
We hold the view that without ensuring stability which is again dependent on a peaceful political environment, without putting the necessary infrastructure in place, without ensuring adequate energy, without ensuring safe working conditions, there cannot be and there will not be a sustained increase in the flow of investment. Under the circumstances lowering corporate tax alone can gratify big corporate bosses only. Without the required rate of investment GDP cannot rise up to the level necessary if Bangladesh wants to be a middle income nation. CPD has rightly pointed out that the demand of the business leaders for lowering the corporate tax rates calls for close examination and a detailed analysis. If corporates are given a blank cheque the only beneficiaries would be corporate bosses.
