The tax-free income threshold for personal income should be raised to Tk 3.50 lakh considering the added pressure of rising commodity prices, particularly those of food items, said the CPD

The Centre for Policy Dialogue (CPD) today urged the government to reduce the duties and taxes, both at import and domestic levels, on essential commodities in order to provide some respite to consumers with low and limited income amid higher inflation.

Although duties and taxes on sugar were reduced recently, a CPD analysis shows that at least 28 imported essential food items still face a high incidence of tax.

"We propose that such taxes should be reconsidered, especially in view of the cost-of-living crisis prevailing in the economy at present," said the think-tank.

In the 2022-23 budget, the personal income tax structure has remained generally unchanged from the one introduced in the 2021-22 budget.

The CPD argued that reducing the highest tax rate (from 30 per cent to 25 per cent) was against the cause of promoting tax justice.

"The highest tax rate should be reinstated at 30 per cent for top earners in the 2023-24 budget."

The tax-free income threshold for personal income should be raised to Tk 3.50 lakh considering the added pressure of rising commodity prices, particularly those of food items, said the CPD. 

Alternatively, the second slab for personal income tax which is 5 per cent for an additional Tk 1 lakh should be increased to Tk 3 lakh to provide a cushion to limited-income earners.

In the current budget, the rate of investment tax rebate has been fixed at 15 per cent on the eligible amount. This means that higher taxpayers, or top earners, get higher tax rebate benefits whereas those with annual income below Tk 15 lakh will not get any additional tax benefits.

"The withdrawal of this provision needs to be considered in the FY2024 budget," said the think-tank.

The CPD urged the NBR to be restrained from all ad-hoc provisions of tax incentives and be careful in the next fiscal year as more demand for incentives will be lined up in view of the current economic situation.

"A proper cost-benefit analysis must be conducted before coming up with new provisions and there should also be a medium-term plan and timeline on phasing out the various tax exemptions."

"The NBR should also consider providing an analysis of revenue forgone owing to the various tax exemptions in the next budget. This will perhaps draw some much-needed political attention to the issue."

In Bangladesh, the cigarette industry's pricing encourages the purchase of relatively cheaper cigarettes. The complicated tiered tobacco tax framework supports differential pricing.

"So, the tobacco tax structure needs to be streamlined," said the CPD, adding that cigarette affordability should be reduced as a result of tax-induced price increases.

The FY2023 budget added a new provision in the Income Tax Ordinance 1984 with a view to mainstreaming money earned and assets acquired abroad into the economy.

According to the provision, no authority, including the income tax authority, can raise any question as to the source of any asset located abroad if a taxpayer pays tax on such asset. This opportunity will be in force for the full FY2023 period.

"Such an initiative is ethically unacceptable and will discourage honest taxpayers, and has traditionally been unable to generate the intended revenue. The CPD strongly urges for discontinuation of this provision," said the think-tank.

It said other provisions that allow to legalising of undisclosed incomes and assets should be discontinued from the next fiscal year.