Foreign Workers in Bangladesh: Economic Implications and Tax Considerations
The presence of foreign workers in Bangladesh has become a significant topic of discussion, particularly regarding their salaries and tax contributions. Recently, Different Authorities raised concerns about the salary disclosures of foreign workers, suggesting that discrepancies indicate potential tax evasion. They found instances where expatriates living in luxury accommodations—renting for BDT 150,000—were only reporting BDT 50,000 in housing expenses on their work permits. And also having discrepancies in showing Basic Salary, Car facilities, Medical Facilities, etc. This discrepancy has led to allegations of tax avoidance, prompting calls for increased salary regulations for foreign workers.
Economic Impact of Foreign Worker Salaries
While the intention behind scrutinizing foreign worker salaries may be to ensure tax compliance, it is essential to consider the broader economic implications. The reality is that when foreign workers receive their salaries, they often remit a substantial portion—up to 80%—back to their home countries to support their families. This practice, while beneficial for the expatriates’ families, results in a significant outflow of foreign currency from Bangladesh, which could otherwise contribute to the local economy.
Moreover, when companies account for expatriate salaries in their profit and loss statements, they benefit from deductions that lower their taxable income. This not only reduces the overall tax burden for these companies, which are subject to a corporate tax rate of 27.5%, but also affects the individual tax obligations of expatriates, who are taxed at a rate of 10 % to a maximum 25%. As a result, the government’s efforts to collect taxes from foreign workers may inadvertently lead to a loss of foreign currency and potential tax revenue.
Wage disparity:
A significant wage gap between local and expat employees can lead to dissatisfaction among the local workforce. This disparity might create tensions and reduce morale, potentially affecting productivity.
Cost of living increases:
Higher salaries for expats can inflate the cost of living, especially in sectors such as housing and services, as businesses might cater more to expat purchasing power. This can make it more expensive for locals to live in the same areas, increasing inequality.
“It’s important to note that foreign workers do not base their lives solely on the benefits reflected in their salaries; they live according to the total compensation and benefits provided by their employers. Therefore, it is not accurate to compare their expenses solely with the benefits reported in their work permits.”
Conclusion
In conclusion, while the scrutiny of foreign workers’ salaries aims to enhance tax compliance, it is crucial to weigh the implications of such measures on the Bangladeshi economy. The outflow of remittances and tax reductions for companies could counteract the intended benefits of increased taxation. A more balanced approach that considers the economic contributions of foreign workers, including their role in local businesses and remittance flows, may yield better outcomes for the Bangladeshi economy as a whole.