The draft new income-tax law is likely to ban cash transaction in some major areas like payment of salary and house rent after its implementation.
But businesses suggest slapping the ban in phases.
The law also keeps the much-talked-about source tax provisions (sections 79-129) unchanged in the draft Income Tax Act-2022 to replace the Income Tax Ordinance-1984 after its passage in parliament.
The Business Initiative Leading Development (BUILD) pointed out multiple provisions of the draft law that needs some relaxation or gradual implementation to help taxpayers cope with the changes before placing it to policymakers.
BUILD is a unified platform of businesses comprising Dhaka Chamber of Commerce and Industry, Metropolitan Chamber of Commerce and Industry, Dhaka, and Chittagong Chamber of Commerce and Industry.
The National Board of Revenue, the BUILD said, source taxes, in most cases, slaps as minimum tax or final one, leading to the imposition of twofold effective tax rate on corporate taxpayers.
"Income tax and its adjustable source tax should be determined on the basis of profitability index of services or it should be sector-wise," the BUILD said suggesting a long-term plan for this.
Source tax is now determined based on gross sale.
For collecting source tax on export earning, the BUILD suggested determining income tax on the basis of actual export earnings (accounted earning) instead of received export proceeds or earnings.
It also suggested allowing full tax exemption to industrial undertakings under tax-holiday facility instead of 90 per cent under the sixth schedule of the draft law.
The Income tax Ordinance-1984 allows taxpayers to show cash transaction up to Tk 20,000 for salary income, any amount of office rent, raw materials up to Tk 0.5 million and other payment up to Tk 50,000.
"Currently, a large part of businesses is carried out through cash transaction. Financial discipline of the informal sector that is related with the formal section might be disrupted if the government made 100 per cent banking transaction mandatory," says the BUILD.
It proposed to set a threshold first for mandatory banking channel transaction and gradually bring 100-per cent transaction.
Talking to the FE, a senior income-tax official said salary payment through banking channel or mobile financial services (MFS) might be made mandatory in the income-tax law as per the draft.
He said the measure would ensure transparency and the businesses would have to be prepared for recorded transactions gradually.
The BUILD also found no provision for repatriation of foreign companies' income and determination of income tax of the multinational companies (MNCs) in the law.
It thus suggested incorporating a provision 'Pay where you earn' for the MNCs providing services and products worldwide. A minimum tax should be imposed on them.
It also proposed to incorporate a provision to tax the digital services.
It recommended incorporating guideline to help businesses wind up if it failed to sustain or continue businesses clarifying the income tax procedures.
Other recommendations include defining export and deemed export properly in the law, specify electronic tax management on tax-related procedures including digitized hearing, appeal and tax-settlement process.
It also recommended excluding taxpayers from audit for next three years after they face audit in a year and use risk-based automated audit system instead of existing random file selection.
BUILD researcher (taxation and fiscal affairs) Md Nooruzzaman said a clear direction should be in the law on how to implement the automated tax system.
Taxmen currently collect tax deducted at source or minimum tax in 36 heads that remained unchanged in the draft act which is a tax on tax, he added.
Taxpayers have to pay double taxes than the rate declared in the Finance Act as refund mechanism is not efficient for source tax, he cited.
The researcher suggested focusing on expansion of the tax net rather than imposing tax burden on taxpayers and overhauling the existing tax structure to achieve the government's goals to meet the perspective plan.