The Dhaka Chamber of Commerce and Industry (DCCI) has urged for reform of the existing Companies Act followed by implementation as soon as possible to increase the confidence of the business community and attract foreign investment.

Barrister Sameer Sattar, DCCI president, said this at a seminar on possible reforms to the Companies Act-1994 at the DCCI auditorium on Saturday.

Tapan Kanti Ghosh, Senior Secretary, Ministry of Commerce, was present as the chief guest in the seminar.

“Company Act can play an important role in ensuring accountability in the corporate sector besides developing a business-friendly environment and attracting foreign investment in the country,” the DCCI president said.

Barrister Sameer said that this existing old Company Act is not enough to deal with the rapidly changing global situation and increase the capacity of the private sector.

To this end, it is necessary to implement automation activities through the full use of information technology, increase the use of alternative dispute resolution systems, and increase the use of intellectual property laws, he said.

Tapan Kanti Ghosh said that the Ministry of Law has given several guidelines on the draft company Act, which the Ministry of Commerce has worked on and initiatives will be taken to implement it soon.

He said that the Companies Act should not be over-enforced and punitive, as this would lead to disruption of business operations. Several initiatives have been taken to bring more automation to the Registrar of Joint Stock Companies (RJSC) operations.

“It is expected to be implemented by December this year. Once the automation program is completed, there will be no need to set up new branch offices of RJSC in different regions of the country to provide services,” he said.

Bangladesh Supreme Court Advocate Barrister Rashna Imam presented a keynote paper at the seminar.

She highlighted reform proposals like the need for a robust legal framework for mergers and acquisitions to fill the legislative vacuum.

Currently winding up procedures for a company is a lengthy and expensive process, and she recommended making it much easier.

Barrister Rashna also pleaded for mandatory provision of alternative dispute resolution (ADR) or mediation to be inserted in the new Companies Act.

MSH

Companies and organisations will be required to file tax returns on the income generated by employee welfare funds from the current fiscal year and pay a 27.5 percent tax on the earnings. 

The Income Tax Act 2023 incorporates the provision, lifting the tax exemption and amnesty on the compulsion to file returns for funds such as provident funds, gratuity funds and workers' profit participation funds maintained by the private sector.

The law, however, has exempted government-managed provident funds from taxation, raising questions.

TIM Nurul Kabir, executive director of the Foreign Investors' Chamber of Commerce & Industry, said there were many other avenues to collect tax.

"Employees benefit from provident funds after their retirement. So, the authority should not slap taxes on retirement benefit."

He said while levying the tax, the government has not treated provident funds of the private and public sectors equally.

"It is discriminatory," he said, adding that they would appeal to the tax authority for the withdrawal of the tax on income from provident funds.

Debabrata Roy Chowdhury, director for legal, regulatory and corporate affairs at Nestlé Bangladesh PLC, said the introduction of income tax on trust funds would lower the overall income from such schemes.

"This will have an adverse long-term impact on retired employees of private organisations."

Chowdhury urged the authority to address the issue in line with the spirit of the government's initiatives aimed at ensuring social security for private sector employees.

"The recent introduction of the universal pension scheme for private sector employees is a good example of that."

A senior official of the NBR, on condition of anonymity, said the income of government-managed provident funds was exempted in line with the Provident Fund Act 1925.

He said provident funds under the private sector had been historically exempted and there was no requirement to submit tax returns. As a result, it was unclear whether the funds were properly utilised.

"From now onwards, we will see proper disclosure."

The tax official said the contribution of payroll tax is about 3 percent of the total income tax although it should increase as the economy is growing.

Md Shahadat Hossain, a former president of the Institute of Chartered Accountants of Bangladesh, said income from investment in savings certificates, where people invest as a source of future earnings, is already taxed.

"From that perspective, the imposition of tax on provident and other employee welfare funds seems okay."

However, Towfiqul Islam Khan, senior research fellow at the Centre for Policy Dialogue, said social protection for private sector employees was low.

"Provident and other workers' welfare-related funds provide little social protection. The imposition of tax will increase inequality. But there can't be any discrimination in taxation between private and government provident funds."

Khan, citing the latest income tax law that replaced the Income Tax Ordinance 1984, said the NBR tried to find new avenues to increase tax collection and improve the nation's revenue-gross domestic product ratio, which is one of the lowest in the world.

"We can see the desperation of the tax authority to boost collection. This ultimately reveals the inability of the NBR to catch the tax evaders and illicit money makers."