Tax on retained earnings to imperil FDI: Ficci
Multinational companies will feel discouraged to reinvest from their incomes if the proposed 15 percent tax on their retained earnings and stock dividends gets go-ahead, leaving a negative impact on the inflow of foreign direct investment (FDI), said officials of the Foreign Investors’ Chamber of Commerce and Industry (Ficci) yesterday.
“I think many chambers raised this issue, to be relooked. We do not have this money because retained earning does not mean that we actually have this money in the banks. We need to review this,” Shehzad Munim, president of Ficci, said at its regular luncheon meeting at the Westin hotel in Dhaka.
He was addressing a section of Ficci members with Mosharraf Hossain Bhuiyan, chairman of the National Board of Revenue (NBR), as the guest of honour.
Around 36-40 percent of the total FDI that Bangladesh receives every year comes from the retained earnings of multinational companies operating in Bangladesh, which are later reinvested, Munim said.
“It is a significant amount that we actually retain within the business in Bangladesh that enables us to invest for growth and that is the main reason you have retained earnings in the business.”
Most of the money will actually go out of the country if the tax on retained earnings is imposed as most of the shareholders of the multinational companies are from abroad, he said.
“If we are to reinvest into the business, then we have to retain this money. If 15 percent tax is imposed, most of the companies will face serious problems. Paying 15 percent tax is almost impossible for us,” he added.
Advocating for exemption of 7.5 percent VAT on e-commerce business, Munim suggested that the government help this new kind of business to grow further.
He also suggested that the government take at least six months’ time to impose new multiple rates of VAT in business so that the companies can be accustomed with the new system. In response to Munim’s queries, the NBR chairman said he would sit with the members of the Ficci soon to listen to their problems so that the FDI inflow does not get affected. Bhuiyan said many supermarkets were unhappy with the fact that VAT was imposed on them sparing the e-commerce businesses although both are doing the similar kind of business.
This year the government did not raise the tax, rather in some cases duties on import of some goods were reduced to encourage the inflow of FDI to Bangladesh, he said.
Reasoning the rise in tax on sugar, he said the price of the sweetener in the local market was pretty low now and the consumers would not face any major challenge if the price of per kilogramme was increased by Tk 5 now.
Similarly, the price per litre of cooking oil may increase by Tk 2 or Tk 3, which the consumers can also tolerate, he said.
However, unfortunately, when the price of any basic commodity is lowered, its reflection is not noticed in the market, Bhuiyan added. He assured that the NBR would review different issues with the businesspeople so that the cost of doing business does not increase.
