• Tuesday, July 29, 2014

High tax for super rich

Sohel Parvez

The super rich will face higher taxes in the next fiscal year as the government has proposed introducing two more slabs to impose higher surcharge for generating more revenue.
Under the scheme, people with net wealth of more than Tk 20 crore but lower than Tk 30 crore will have to pay 20 percent surcharge on their payable tax.
Those, who have net wealth of over Tk 30 crore, will face 25 percent surcharge on their payable tax, according to the proposed budget for fiscal 2014-15.   
These are the additions to the existing structure of surcharge that the government had imposed since fiscal 2011-12 with an aim to collect higher taxes from wealthy people.
However, the existing two slabs -- 10 percent surcharge on people with net wealth of more than Tk 2 crore to Tk 10 crore, and 15 percent for those with net wealth from over Tk 10 crore to Tk 20 crore, -- remain unchanged.
Rising revenue collection from wealth surcharge has encouraged the government to go for the new measures.

Revenue collection rose to Tk 101 crore in fiscal 2012-13 from Tk 65 crore in fiscal 2011-12, according to the National Board of Revenue.
NBR's earnings from surcharge are likely to rise 48 percent year-on-year to Tk 150 crore in the outgoing fiscal year. The amount stood at Tk 131 crore between July and April in the outgoing fiscal year, taxmen said.
Wealth surcharge is an alternative to wealth tax which some economists say the government should introduce to discourage people from holding the possession of property, mainly land, for a long time.
Because of scarcity of land in Bangladesh, people invest in land and keep that in possession. And it gives them the scope for getting rich in a short time.
Taxmen said the wealth surcharge will be imposed on total net wealth, not income. So, wealthy people will have to pay income tax in line with the rise in income.
Moreover, those who earn more than Tk 44.20 lakh a year will have to pay 30 percent tax on incomes in the next fiscal year, compared to 25 percent in the outgoing fiscal year.
The government also proposed keeping tax-free income limit unchanged at Tk 2.20 lakh.
The tax rate will be 10 percent on income of next Tk 3 lakh, 15 percent on the next Tk 4 lakh, and 20 percent on the next Tk 5 lakh. And 25 percent tax will be payable on income of next Tk 30 lakh.
Besides, 30 percent tax will be imposed on those who earn above Tk 44.20 lakh.
The finance minister said the proposal for increasing tax on high-income people was made to ensure equitable distribution of income and reduce economic disparity.
Top executives in banks, multinational companies, mobile phone operators and large corporate firms are likely to fall under the new slab of above Tk 44.20 lakh.
Binayak Sen, research director at Bangladesh Institute of Development Studies (BIDS), welcomed the step to impose more tax on wealthier people, and said higher revenue collection from affluent people will help ensure equity.
He, however, said revenue collection from wealth surcharge will not increase unless steps are taken to ensure asset valuation based on fair market rate. People declare assets showing valuation based on purchase prices, he said.
"A large section of people will have to pay surcharge on their wealth in case of valuation based on fair market rate. The government needs to ensure that. Otherwise the state will not get much revenue," he said.
Ahsan H Mansur, executive director at Policy Research Institute (PRI), is critical of imposition of 30 percent tax on income of above Tk 44.20 lakh and wealth surcharge.
He termed the wealth surcharge de facto income tax, and said the applied rate of tax will be between 33 and 35 percent if the surcharge is levied on high-income individuals with net wealth of more than Tk 2 crore.
It is apparently a sharp rise in tax rate in a very short time and may lead to an increase in undisclosed income and tax avoidance by taxpayers, he said.
“They [the tax authority] need to go slow,” said Mansur, also an ex-official of the IMF.

 

Published: 12:04 am Friday, June 06, 2014

Last modified: 8:37 pm Friday, June 06, 2014

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