Significant amendments to the Income Tax Act 2023
Afrin Ahmed :
As we all are aware that individuals are required to pay income tax on their total income and submit their tax return each year by November 30, which is also celebrated as Tax Day in Bangladesh.
Recently, Bangladesh Parliament abolished the Income Tax Ordinance of 1984 and approved the new Income Tax Act of 2023, which took effect on June 22, 2023.
Bangladesh’s new tax legislation does not totally replace the country’s existing tax code. However, the large increase in the number of chapters and sections demonstrates a desire to fill any gaps and establish a more cohesive and consistent legal framework.
This reflects a serious endeavour to align with global tax best practices. The goal of this programme is to increase the tax system’s efficacy and efficiency while remaining compliant with worldwide norms.
This legislation replaces the Income Tax Ordinance of 1984 by expanding the tax net and providing taxpayers with options such as tax holidays for newly founded industries and infrastructure development in order to encourage foreign direct investment in Bangladesh.
These structural strategies seek to boost clarity, simplify understanding, and encourage uniformity in the application of tax regulations. By clustering interrelated provisions, individuals and tax experts can effortlessly pinpoint and cross-reference the pertinent information, ensuring a more streamlined grasp of the law.
The ordinance has, however, undergone a few important changes, some of which are shown here:
1. There were formerly three different wage exemptions: medical allowance of up to Tk. 120,000, housing rent allowance of up to Tk 300,000, and conveyance allowance of up to Tk 30,000. These allowances are now combined into a single tax exemption of up to Tk 450,000, calculated on the lesser of Tk 450,000 or one-third of the yearly wage.
The amount remaining after subtracting the exemption is taxable income. The tax rate has been raised somewhat. Previously, the first zero-percentage-tax slab was Tk 0-300,000. Tk 0-350,000 is now the going rate.
All else being equal, this adjustment is estimated to reduce an individual’s annual tax liability by around Tk 2,500-12,500. Women, the elderly, and gazetted independence warriors benefit from even larger zero-percentage-tax slabs, resulting in extra tax savings.
2. This amended law allows up to Tk.18,000 tax rebate on DPS. If an individual holds fixed deposit (FDR) receipts totalling more than Tk.10 lakh, they are obligated to file income tax returns and furnish evidence of their return submission to the bank where the FDR was initially opened. Mutual funds are eligible for a reimbursement of up to Tk. 75,000. Individual stock investments up to Tk. 1,000,000 are eligible for a refund.
3. Savings certificates will now be classified as securities that allow taxpayers to claim tax rebates, and a 5% source tax will be withheld from the interest payments on these certificates, similar to the treatment of other government securities. This 5% deduction will serve as the minimum tax requirement. It’s worth noting that in the previous fiscal year, the source tax rate on savings certificates stood at 10%.
4. The new legislation expands the types of costs that can be deducted.
Notably, it raises the deduction ceiling for royalties and technical expenses. Prior legislation allowed for a deduction of up to 10% of stated net earnings in the first three years of business operation and 8% in subsequent years.
The new regulations, on the other hand, abolish the differential based on the number of years in operation and raise the deductible threshold to a uniform 10%, regardless of the business’s operating history.
5. By taking into account the views of various groups of people, the government has decided not to impose a minimum tax of Tk 2000 on persons who do not have taxable income. Also, individual taxpayers are free from the requirement to provide wealth declarations for international travel, savings for treatment and religious activities such as hajj.
6. According to the legislation, the special tax rate for buying more than 200 square meters of building space or apartment in upscale regions such as Gulshan Model Town, Banani, Baridhara, Motijheel commercial area, and Dilkusha would increase to Tk6,000 from Tk5,000. The particular tax amount in district towns would be raised to Tk 800 from the original Tk 700.
7. When registering and renewing a second vehicle at source, taxpayers who own more than one automobile will be charged an extra price ranging from BDT 25,000 to BDT 350,000, depending on engine capacity.
Owners of automobiles with up to 1,500cc or 75-kilowatt engines will have to pay an environmental fee of BDT 25,000 for the second and subsequent vehicles.
The fee will be increased to BDT 50,000 for vehicles with engine capacities ranging from 1501cc to 2,000cc, or more than 75kW to 100kW.
As part of the environmental surcharge rate, owners of a second automobile with a capacity of 2,001cc to 2,500cc or 101kW to 125kW will have to pay BDT 75,000 for each car.
Taxpayers who possess several autos with capacities ranging from 2,501cc to 3,000cc (125kW to 150kW) would be charged a BDT 150,000 fine. Furthermore, the tax office will levy a BDT 200,000 environmental premium on the second and third automobiles with engines larger than 3,000cc.
8. The new law introduces an enhanced tax refund process focused on efficiency and ease of use. According to the updated regulations, tax refunds will be seamlessly delivered through electronic transfers directly to the taxpayer’s bank account.
The law specifies that the refund should be deposited within 60 days of processing the corresponding tax return, with the provision for offsetting against any outstanding dues the taxpayer may owe.
If the refund is not deposited within the stipulated timeframe, the taxpayer retains the right to request the refund through the prescribed procedure.
9. The new legislation includes new procedures for deregistration of Taxpayers’ Identification Numbers (TIN) or Withholder Identification Numbers (WIN) in case of people leaving Bangladesh, for deceased persons, for winding up, and for closure of Branch/ Liaison office. The new law adopts a co-ordinated approach, bringing together kin tax provisions within a single chapter.
The discussions above provide a glimpse of the changes brought about by the new tax law. While these highlights capture only a portion of the overall amendments, they reflect the significance of the reforms. The new tax system is expected to evoke conflicting emotions at first.
However, as time passes and the ambiguities are resolved, a consensus will form, allowing for a fair evaluation of its efficacy in attaining its intended aims. We can negotiate these changes and optimize our tax preparation tactics with patience and agility.
(The writer is Advocate, Bangladesh Supreme Court.)
