Direct Tax: Income Tax :
Income tax is the internal driving force of a country’s economy and plays an important role in maintaining social and economic equality in the country. Direct taxes are generally imposed on a progressive basis, with the aim of distributing the burden equitably so that higher income individuals pay a larger share of their income or wealth as income tax than lower income individuals. Income tax plays an important role in establishing equality and social justice through redistribution of income. At present income tax contributes about 35% of the total revenue collected by the National Board of Revenue. The average growth in income tax collection is more than 16 percent, which continues to increase in spite of the corona epidemic and continuation of global war situation. Nevertheless, increasing the tax-GDP ratio is a challenge for the National Board of Revenue. There is no alternative to internal revenue to overcome this challenge. A welfare-oriented and people-friendly income tax reform is an important tool to achieve this objective. The proposed budget continues to provide policy and tax support for building a Smart Bangladesh, preparing for LDC graduation, achieving revenue growth and economic growth, redistributing wealth and reducing inequality, keeping inflation at a bearable level, preserving and promoting domestic industries, earning foreign currency and diversifying exports.
Madam Speaker
I propose to retain the proposed tax rate for 2024-25 for the assessment year 2025-26 to facilitate the expansion of trade, improve investor confidence in the country’s tax system and encourage local and foreign investment, thereby introducing a prospective tax system in Bangladesh. I believe that through a prospective tax system, taxpayers can do proper tax planning and help increase tax compliance.
Madam speaker
Currently many sector-wise company tax rates are effective. I propose to conditionally make the tax rate from 27.5% to 25% for companies that are not publicly traded as defined in the Income Tax Act, 2023. In this case, all types of income and receipts of any amount and all types of expenses and investments above 5 lakh Taka in each single transaction and above 36 lakh Taka in total annually must be done through bank transfer. In order to further formalize the economy and encourage the establishment of one-person companies, I propose to make the one-person company tax rate from 22.5% to 20%, subject to compliance with the same conditions as non-listed companies. It is proposed to conditionally make the tax rate from 22.5% to 20% for listed companies if shares exceeding a certain amount of paid-up capital are transferred through IPO (Initial Public Offering). Currently, as part of the effort to achieve the country’s tax-GDP rate growth target every year, I propose to increase the tax rate for cooperative societies from 15% to 20% keeping other tax rates fixed as per last financial year. The table below proposes the company tax rates:
Madam Speaker
Financial inclusion, formalization of the economy, expansion of the tax-net and increase in tax compliance are some of the key drivers in developing the formal economy in the country. The tax policy followed by the present government is to continuously rationalize tax rates while expanding the tax base. In pursuance of this policy, I propose the following proposals in the budget to create new areas of revenue collection and to bring about equal competition in business:
(a) To include resorts, motels, restaurants, convention centres in the definition of specified persons for the purpose of deduction or collection of tax at source;
(b) Provide that all such persons who are legally liable to file a return under section 166 shall file a return under section 180 in the self-assessment manner;
(c) Imposing obligation to furnish proof of submission of return on obtaining and renewing licenses of hotels, restaurants, motels, hospitals, clinics, diagnostic centres and at the time of receiving services from community centres, convention halls or similar service providers;
(d) Providing for a penalty of not less than 20,000 taka and not more than 50,000 taka for failure to display proof of submission of return at the place of business;
(e) Impose Tax on any gross income received by a company, which is not tax-exempt or a grant or any tax, duty or duty of any kind, not liable to file a return;
(f) To rationalize the rate of tax deduction on the amount paid or borrowed by the bank or financial institution in respect of the local letter of credit opened or made for the purchase of Rice, wheat, round potato, onion, garlic, beans, gram, lentil, ginger, turmeric, dry chillies, dal, maize, coarse flour, flour, salt, edible oil, sugar, black pepper, cinnamon, almonds, cloves, cassia leaves, jute, cotton and yarn;
(g) Substitute more clearly the existing provision of deduction of tax at source against the amount payable to Workers Participation Fund, Workers Welfare Fund and Workers Welfare Foundation;
(h) Increasing the rate of deduction of tax from distribution of income or any license fee or any other fee or charge paid by any cellular mobile phone operator;
(i) Deduction at source at the rate of 20% from the interest income of Trusts, Associations of Persons, Public Universities, MPO institutions. Deduction of tax at the rate of 10% from the interest income of various funds and primary schools;
(j) Rationalizing the rate of deduction of tax against purchase of power from captive power producers;
(k) Rationalizing the rate of collection of tax on income received against services rendered in Bangladesh to a non-resident;
(l) Inclusion of clauses (a), (aa), (aaa) of sub-section (1) of section 17 as well as (b), (c) and (e) of Registration Act, 1908 (Act No. XVI of 1908) to provide for applicability of collection of tax at source in respect of transfer of deeds;
Madam Speaker
I propose the following to increase tax equity:
a) Exemption of any assets acquired by inheritance, bequest, or any irrevocable trust;
b) Exemption of any donation or donations received by any person authorized by the NGO Affairs Bureau;
c) Exemption from payment of advance vehicle tax to orphanages, religious places of worship;
d) To exempt from tax the portion of income (other than donations or grants) received by a beneficiary of a charitable trust or a participant in a fund out of a portion of the income of the trust or fund on which tax has been paid by the said trust or fund;
Madam Speaker
“Direct Tax Expenditure” means rebates, exemptions, tax at reduced rate and exclusion of income from computation of total taxable income. It is a type of tax subsidy. That is, if this subsidy was collected as tax, it would be added to the total tax collected and the amount of tax would increase. The total tax expenditure will also be included in the total subsidy along with other subsidies from the government.
In line with international best practices, the Income Tax Department of the National Board of Revenue has, for the first time in Bangladesh in the last financial year, estimated the “direct tax expenditure” based on the analysis of actual data at the field level, which has been achieved entirely through the efforts of the Income Tax Department.
The total estimated amount of “direct tax expenditure” for the financial year 2020-21 was Tk 1,25,813 crore. The “direct tax expenditure” for FY 2021-22 is estimated at Tk 1,15,616 crore – out of which Tk 71,954 crore at the company level and Tk 43,662 crore at the individual level. Overall, this “direct tax expenditure” is 2.91% of total GDP for FY 2021-22, as against 3.56% for the previous FY. Taking into consideration the provisional total GDP size of 2023-24, the total amount of projected “direct tax expenditure” for that financial year comes to Tk 1,46,897 crore.
Direct Tax Expenditure for the Financial Year 2021-2022
Madam Speaker
We have been providing tax exemption facilities for a long time with the aim of promoting investment and trade in the country, increasing employment and exports. A number of important sectors currently enjoy full tax exemption and many sectors pay income tax at a reduced rate. Although tax exemptions have increased investment and employment, the tax base is shrinking to a large extent.
For tax expenditure rationalization I propose as follows:
(a) An exempted person may pay tax at the regular rate by surrendering his tax in whole or in part;
b) Limiting the facility of Hi-Tech Parks only to Government Hi-Tech Parks and adopting the same measures in the case of Economic Zones;
c) If a person is exempted from tax against income from any one source for a certain period, he will not be exempted from tax again against income from such source for any other period and such person will be exempted from tax even if such person is reorganized by any kind of merger, demerger and acquisition;
d) Disallowance of depletion allowances of companies engaged in petroleum and mineral extraction;
e) To tax any capital gain exceeding Tk.50 lakh received by a natural individual taxpayer from transfer of shares or units of a listed company or fund.