The government has decided to reduce the corporate tax in the upcoming budget for all listed and non-listed production-oriented companies to create breathing space for the private sector amid the pandemic.

The tax will be set at 30% from the existing 32.5% for non-listed companies and at 22.5% from 25% for the listed ones in the fiscal 2021-22 – as a gift of "Mujib Year" – finance ministry sources said.

The tax rates for other sectors will remain unchanged.

Sources said the National Board of Revenue has taken this initiative following a directive from Prime Minister Sheikh Hasina to prioritise local industries in the next budget.

They also said the revenue target for the next fiscal year will remain unchanged and the tax structure will be kept the same.

The upcoming budget will focus on bringing in more investment in local industries. Considering the current situation of local industries, the government has taken the move to reduce corporate tax by 2.5 percentage points.

If industries survive, production will increase, so will export earnings. New jobs will be created as well, contributing to an increase in people's income, which might be reflected in the total revenue earnings, the sources said.

Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industries (DCCI), told The Business Standard, "We have urged the government to reduce corporate taxes by at least 2.5 percentage points each year and that it will boost the confidence of the business community."

Terming Prime Minister Sheikh Hasina a friend of the private sector, Rizwan said, the PM has taken initiatives that are helpful to create a business-friendly environment during the pandemic.

The DCCI president said if the government reduces tax rates, it will help draw investment in the local industries. More foreign direct investment will come as well. Thus, the tax net will further be expanded.

According to the current tax structure, there are eight slabs of corporate taxes – 25% for listed companies,  32.5% for non-listed companies, 37.5% for listed banks and those approved after 2013, and 40% for non-listed banks, 37.50% for merchant banks, and 15% for cooperative organisations.

Manufacturers of cigarettes, jorda, gul and other tobacco products have to pay a 45% corporate tax, while listed mobile operators pay 40% and an additional 20% on dividend income.

Besides, apparel exporters have to pay a 12% corporate tax and it is 10% for green factories.

Abul Kasem Khan, chairman of the Business Initiative Leading Development (BUILD), said, "It will be a landmark step in the country's history. The corporate tax cut will boost businesspeople's confidence.

"The business community needed this help to survive during the adverse situation caused by Covid-19."

The former DCCI president said, "Alongside local investors, the corporate tax cut will also attract foreign investors – those who want to make new investments in Bangladesh."

He believes the government should also fix the corporate tax at an effective rate as businesspeople are facing challenges because of the advance tax. If anyone has a chance to get a refund that should be allowed.