Why increase tax on private sector provident fund?

Provident fund (PF) is a crucial retirement benefit for private and public sector employees. A provident fund, in general, is built up with the small contributions of the employees from their salaries. The employers also contribute an equal sum to the fund. At the time of retirement, employees receive an amount of money that includes their own as well as employers’ contributions, including the interest accrued on it. The amount can be withdrawn only after the PF reaches maturity. This payment allows individuals to enjoy a financial safety when they retire from work and do not have a steady monthly income. For private sector employees, the PF is very helpful since they are not allowed to enjoy pension benefits like their public sector counterparts. However, this PF benefit has recently been subjected to tax. According to the Income Tax Act of 2023, the government of Bangladesh has recently imposed a 27.5 per cent corporate tax on the income from private provident funds from this fiscal year. However, provident funds of the government employees have been exempted from this tax.

As for instance, you deposit Tk 3,000 from your monthly salary in the provident fund. Your employer also contributes Tk 3,000 to the fund. So, the total comes to Tk 6,000 a month or Tk 72,000 a year. Now, if your employer deposits this amount with a bank as FDR (fixed deposit receipt) at 10 per cent interest, the amount of interest earned will be Tk 7,200. And it will be added to your provident fund. Earlier, Tk 720 was deducted as source tax on this investment, at the rate of 10 per cent. With the new 27.5 per cent tax, the government will take away Tk 1,980 from your fund. That means the government will deduct an additional Tk 1,260 every year from your retirement benefit, starting from this fiscal year 2024.

This hefty tax imposed on private sector employees is simply discriminatory as it exempts government-managed provident funds from this new tax. Now the new income tax law that imposes around 30 per cent corporate tax on the income of private trusts and funds will significantly decrease the retirement benefits of private sector employees. It is not only that the government employees do not have to pay any tax on their  provident and gratuity funds,  the government, on the contrary, pays 13 per cent interest on their provident fund. This is the highest interest on deposits. Increasing tax on the income of private sector provident funds means only discouraging such funds. Generally, the government collects taxes for the welfare of the people. But now, tax is being taken from the public welfare funds. Isn't it against progressive taxation? In a country like Bangladesh where private-sector employers get only a few retirement benefits, provident funds are a lifeline for the retirees. Increasing tax on the Provident Funds (PFs) could discourage workers and negatively impact the private sector.

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