Numerous publicly listed companies and business enterprises in Bangladesh are grappling with financial strain due to tax obligations.
According to industry stakeholders, advance tax deductions have become a significant burden, disrupting financial stability and business operations.
Advance taxation, implemented as a convenient method of revenue collection, is also regarded as a safeguard against tax evasion.
Typically, such taxes are imposed at the source, including on raw material imports and business turnover.
While intended to streamline tax compliance, the system has drawn widespread criticism for its rigid and cumbersome refund processes.
Businessmen argue that advance tax is deducted even before businesses generate profits, with the expectation that any excess amount would be adjusted at the end of the financial year.
However, procedural complexities and bureaucratic delays often hinder such adjustments, leading to increased financial distress for businesses.
Many industry leaders have called for a reform of the existing taxation framework to ensure a more business-friendly approach.
Tax experts note that, contrary to its intended purpose, the advance tax mechanism fails to curb tax evasion effectively and instead places undue pressure on businesses.
In numerous instances, companies find themselves paying more in taxes than their actual earnings warrant, further incentivising loophole-seeking behaviour to mitigate losses.
Advanced economies, in contrast, implement more flexible tax structures, making the Bangladeshi system appear particularly stringent.
Businesses are required to pay various levies at different stages of import and production, including customs duty (CD), supplementary duty (SD), regulatory duty (RD), advance income tax (AIT), advance tax (AT), and value-added tax (VAT).
For commercial traders, AT and AIT apply universally, often leading to situations where businesses face excessive deductions, particularly in cases where the final payable tax is lower than the pre-collected amount.
According to regulatory provisions, manufacturers involved in the production of cement, iron and iron-based products, ferroalloys, perfumes, carbonated beverages, powdered milk, aluminium, and ceramics can adjust the advance income tax on raw material imports.
However, businesses outside these categories are deprived of such provisions, leading to disparities in tax obligations.
Officials at the National Board of Revenue (NBR) maintain that advance taxation is designed for taxpayers’ convenience, enabling them to make payments in instalments and facilitating end-of-year adjustments.
However, many businesses claim that, in practice, refunds are rarely granted, compelling them to inflate product prices to compensate for the financial shortfall.
The tradition of advance tax collection in Bangladesh dates back to the British colonial era.
One NBR official noted that tax deduction at source has been in practice since 1922.
"While sectors have expanded over time, the fundamental tax principles remain unchanged. In India, tax deduction at source applies to an even wider range of industries. Refund provisions exist within our legal framework, though occasional challenges arise in their implementation," he explained.
Business leaders argue that the private sector has significantly expanded in recent years, with increasing global connectivity intensifying the impact of tax policies.
The combination of macroeconomic instability, dollar shortages, inflationary pressures, rising electricity and fuel prices, and escalating interest rates has already heightened operational costs for businesses.
In such an environment, the additional burden of advance taxation has become a formidable challenge.
A senior official at the NBR, speaking anonymously, clarified that advance tax payments for imported raw materials in exempted industries are eventually reimbursed, while advance tax on goods imported for commercial resale is non-refundable.
Manufacturers, however, are granted a six-year window to adjust their advance tax liabilities.
A source from the textile sector highlighted the disparity in tax imposition, particularly for yarn exporters, who face a 0.5% advance tax deduction.
The spinning, knitting, re-rolling mill, and cement industries are among those most adversely affected by advance tax deductions.
Given the prevailing financial constraints, industry experts are urging policymakers to reassess the tax framework to alleviate the disproportionate burden on businesses, ensuring a more equitable and growth-oriented fiscal environment.
