Income tax doubled for motorcycle, refrigerator, and air-conditioner companies

The tax rate jumps from 10 percent to 20 percent

After increasing the value-added tax, or VAT, on more than fifty products and services, the interim government has doubled the income tax for companies in the motorcycle, refrigerator, air-conditioning machine and compressor industries.

The National Board of Revenue says in a notice on Tuesday that the income tax rate on the companies in these industries has doubled from 10 percent to 20 percent.

The notice said the new income tax rate will be applicable in the 2025-26 fiscal year and the companies will have to pay the extra tax on their income in the current fiscal year.

These industries have also been paying a 2 percent advance income tax (AIT) for importing machinery, small parts and equipment. NBR officials said the AIT was likely to be increased as well. The new rate will be applicable immediately when it is hiked, they said.

Since 2021, these industries have enjoyed lower AIT and income tax rates since 2021. These incentives were to continue until 2032, but the order has been cancelled and a new tax rate fixed.

Currently, a general corporate tax of 25 percent and 27.5 percent is levied on companies producing motorcycles, air-conditioning machines, refrigerators and compressors.

The government will earn an additional Tk 10 billion with the increased income tax on those four products, NBR officials said.

The International Monetary Fund, or IMF, had asked the Bangladesh government to take in an additional Tk 120 billion in revenue as a condition for its $4.7 billion loan agreement.

In response, the NBR suddenly pushed up VAT at the mid-point of the fiscal year. The income tax hike follows the VAT decision.

The increase in the income tax rate will not bring about an immediate shift in revenue, but the fruits will be seen next year. Still, the NBR decided to increase the tax rate to show their commitment to the IMF’s conditions.

The NBR had previously proposed a VAT hike on 43 types of products and services.

The list of products to face additional VAT and tax includes medicine, milk powder, biscuits, juice, fruits, soap, sweets, mobile phone talk time, internet service, restaurants, air-tickets, cigarettes and tobacco products.

The VAT on these products is to go up from 5-7.5 percent to 15 percent.

There is also a proposal to increase the excise duty and supplementary duty on different products and services. Among them, a 1.5 percent hike in supplementary duty for different types of cigarettes and 3 percent hike in mobile talk time are likely to be imposed.

“In addition to the immense relaxation of taxes and excise duty on essentials to serve the public interest, the government has been taking different measures to increase revenue earnings, expanding the scope of VAT and to implement the SDGs [Sustainable Development Goals],” the NBR said in a notice on Saturday.

NBR said that it had to take special measures in the middle of the 2024-25 fiscal year to increase its revenue through “rationalisation” of the rates and amounts of VAT, supplementary duty, and excise duty in addition to expanding the scope of VAT.

“Steps have been taken to expand the purview of income tax in addition to the value-added tax. Income tax exemption provisions are also being eliminated and revised to continue the gradual elimination of the culture of tax evasion.”