Govt to tighten rules for payment of over Tk 50,000 by businesses

The government may make it mandatory for businesses to use formal channels such as banks and mobile financial services for transactions involving more than Tk 50,000 from the next fiscal year.

The move, if implemented, will encourage fund transfer through formal channels and give a major fillip to MFS and other digital means.

The plan is likely to be tabled by Finance Minister AHM Mustafa Kamal in his budget proposal for the next fiscal year on June 3.

And if it gets the nod by the parliament, businesses will also have to make all payments, including those for the purchase of raw materials costing more than Tk 50,000, through formal banks, MFS and other digital means that have approval from Bangladesh Bank.

In case of non-compliance, businesses are likely to see that tax officials disallow the expenses claimed on account of payment.

"This will formalise a large number of transactions and curb tax evasion. It will be beneficial for the overall economy," said a senior official of the finance ministry.

The tax authorities plan to include MFS and other digital means in its rule as the money changing hands through electronic channels has increased significantly in recent years.

For instance, the MFS segment, which was unfamiliar to most of the commoners even in 2010, has made significant strides because of convenience and instant transfer.

Today, Bangladesh has 15 MFS providers, transacting about Tk 2,000 crore daily. Two years ago, the average daily transaction through MFS was just over Tk 1,100 crore, BB data showed. MFS providers have 10.27 crore account-holders.

Officials said the income tax law has provisions that required businesses to pay salaries and remunerations above Tk 15,000 to employees through crossed cheque or bank transfers. Otherwise, expenses claimed by businesses in their tax returns are not be accepted by tax officials, meaning that firms have to pay tax on the amount.

The use of crossed cheque and bank transfers is also compulsory for the payment of rent for using any property to avoid tax claims made by the authorities.

However, the purchase of raw materials amounting to more than Tk 50,000 has been excluded so far. Under the latest plan, bank transfers, which include banks, MFS and other digital means, are likely to be mandatory for the payment for the procurement of raw materials.

Also, contractors may need to receive payments through banks, MFS and other electronic systems if they want to avoid 50 per cent higher taxes on the rates payable.

Contractors without the 12-digit TIN (taxpayer identification number) are likely to face 50 per cent higher taxes when they receive payments for the job done.