Middle-class hit by tax burden

Ariful Islam has been paying taxes regularly for the last several years on the income from his employment as a banker.

After providing for his five-member family, the 36-year-old tries to invest in savings instruments or buy primary shares to safeguard his future.

But his investment decision does not depend only on his family budget; it also depends on the tax measure. And the one in the upcoming fiscal year is set to squeeze his investment scope. 

Islam will get 15 percent tax rebate on 20 percent investment of his total income, down from 30 percent this year.

“This will affect my savings. This is not good for me and my family.”

Islam, who earns less than Tk 10 lakh a year, is one of the 12 lakh taxpayers who submit their tax returns regularly in a country where less than one percent of the population pays tax.

Like him, many others will find the tax measures proposed by Finance Minister AMA Muhith yesterday less gratifying, although the rate of taxes and slabs remains the same, and there is a proposal for introduction of Tax Day on October 30 every year.

But there is a relief from mandatory submission for marginal taxpayers. Submission of wealth statement has been proposed to be optional for those with gross wealth not above Tk 20 lakh a year.

But the wealthy will be the most aggrieved, as they will have to pay more to the coffer due to a revision in the wealth surcharge rates.

Corporate tax also remains unchanged despite demands from businesses for a reduction.

Taxmen say the previous reduction to 35 percent did not bring expected benefits in terms of compliance.

Only readymade garment makers, who have been demanding for tax cut, will get a slash to 20 percent from present 35 percent.

The reduction, however, could not make the apparel makers happy.

But honest taxpayers may feel happy to see various measures taken to ensure compliance and curb tax avoidance and evasion -- a tendency believed to be rampant in Bangladesh.

Any person working in public entities, including semi-government and autonomous bodies, and draw a monthly salary of Tk 16,000 and above will have to submit income tax returns.

Those working at supervisory positions in non-government entities must have Taxpayers Identification Number.

In addition, withholding tax returns submitted by companies and cooperative societies will face audits.

About 250,000 public and private entities are responsible for deducting withholding or source tax, which accounts for 57 percent of the total direct tax collected.

If any taxpayer enjoying tax exemption or reduced tax rate fails to submit return in any year, he will lose the privilege.

The tax authority collects the withholding tax from 58 sectors by charging various rates, and the rates will rise.

For example, exporters, including apparel makers, are likely to pay 1.5 percent tax at source, up from 0.6 percent this fiscal year -- a move which a senior tax official said might bring the state Tk 3,000 crore.

In reaction, Bangladesh Frozen Foods Exporters' Association urged the government to bring down the tax on frozen food to 0.3 percent.

In fiscal 2014-15, the tax authority collected Tk 1,100 crore in source tax from the export-oriented sectors.

Similarly, the rate of minimum tax for companies, mainly those having yearly gross receipts of more than Tk 50 lakh, has been proposed to increase to 0.6 percent from present 0.3 percent.

However, the rate will be 0.75 percent for mobile phone operators and 1 percent for cigarette, bidi, zarda, chewing tobacco, gul and other smokeless tobacco producers.

Taxmen said the minimum tax has been imposed as many corporate taxpayers take advantage of loopholes in tax laws, rebates and exemptions to avoid tax.

However, the concessional rate of 0.1 percent will continue for newly established manufacturing entities in the first three years to facilitate industrialisation.

The new tax measure, however, provides some facilities for marginal taxpayers.

Small and Medium Enterprises (SME) will also get a little relief. Their tax-exempted turnover limit has been increased to Tk 36 lakh from Tk 30 lakh.

A senior NBR official said tax measures had been proposed with a view to improve compliance.

The measures such as increase in source tax for exporters and various other sectors, reduction of allowable investment limit for taxpayers, increase in number of slabs for wealth surcharge and imposition of 30 percent surcharge on payable tax of super rich will bring the government quite a handsome amount of revenue.

The government aims to increase direct tax by 38 percent to Tk 71,490 crore for the next fiscal from the outgoing fiscal.

The goal, analysts earlier said, is ambitious given the collection growth in recent years.

Ariful Islam, the banker, has little to say regarding the target. Being a regular taxpayer, he will be happy to see that the tax authority's measures help ensure better compliance, prevent evaders to dodge tax, and finally ensure equity and fairness as mentioned by Muhith.

Sushmita Basu, director of tax and regulatory affairs at PwC, said, "In order to augment revenue, the tax proposals aim at widening of tax base and moving towards a more compliance based robust tax administration with stricter parameters.

“In addition, several reform measures, including change in the rate of duty, have been proposed.  Besides simplifying and removing ambiguity in few existing provisions, measures like, proposing the 'automated tax information unit' connecting various online systems nationwide for collecting information automatically, to identify potential taxpayers and to address tax evasion, indicate the thrust towards overall infrastructure and modernisation in line with global best practices.”