Proposed income tax rules: The conflicts and suggestions
On 29th June 2016, a gazette was published by the government proposing changes to the Income Tax Rules 1984 (ITR 1984) of Bangladesh. The changes proposed are in addition to the Finance Act 2016(FA 2016) duly incorporated in the Income Tax Ordinance 1984(ITO 1984). Generally rules are formulated by the government to supplement an Act. However, some proposed changes to the rules may hamper the promulgation of the Finance Act 2016 and the incorporation of the same in the ITO 1984. Besides it shall also be a contradiction of the tax policy one of which as reiterated by the Finance Minister is simplification of tax system and increasing the effectiveness of tax laws.
The proposed change varies the time limit of the tax deducted at source (TDS) amount to be deposited. The significant change affecting shall be the TDS deducted after 20th of June of any year. The proposed change suggests payment to be made to government exchequer within 7 working days or even same working day of deduction (for deduction made in last two days of June). The principal problem with this is that Sonali Bank or Bangladesh Bank where the challans and TDS amount is deposited takes at least 3/5 working days before processing of a cheque or a PO and hence the date stamped on the challans will not coincide with the time limits. In the Finance Act 2016 the government has given power to the tax authority to audit withholding tax return. Such audit may definitely raise the issue of late payment of TDS thereby imposing penalty. As such clarification and amendment in the rule is required regarding when the time shall stop i.e. whether it's the time of deposition or time stamped on a challan.
Proposed set of rules shows that payment to contractors at rates separated in slab rates which were prevalent previously before implementation of FA 2016. However after 2016 the rule regarding TDS from payment to contractors is to deduct 10% at source from the payment. Thereby the new proposed change is in direct conflict of FA 2016 and will thereby raise confusion amongst the taxpayers regarding the rates of payment. This has to be amended as soon as possible to avoid any conflicting situation.
Proposed change to the annual return of salaries under section 108 now have the provision for containing details about percentage of payment made to foreigners as well as payment to employees without TIN and the amounts being paid in cash. This is a positive step as such will ensure tax compliance by the employers besides ensuring that appropriate amount of tax is being deducted.
The return of income tax has been proposed to be simplified so instead of previously existing 5 types of return there will be 3 types of returns: for individuals, companies and any other. Besides a form for time extension or return submission has also been included thereby making the process simpler. But a significant inclusion in the form can be the mentioning of penalty provisions if the time extension is not granted thereby making the assessee more aware of the legal provisions.
Allowances has been made for medical allowances received by a person with disability in thatamount up to taka ten lakh shall not be included in his total income. Furtherance medical expenses received by an employee for a surgery relating to heart, kidney, eye, liver and cancer, shall not be included in the total income of such employee. Both of these provisions are welcoming and related to employee welfare and arein furtherance of social responsibility.
The gadget was published on 29th June 2016 and 15 days was provided from that date for any objections to be raised. However 1st July to 9th July was the holiday season in Bangladesh thereby limiting any constructive criticisms to reach the authority by due time. Hence it should be taken into consideration of the time extension of the same so that any justified objections can be raised in due time for the maintenance of fairness and equity in the taxation system.
The writer is the Financial Lead, FM Consulting International.