The month of April has seen the National Board of Revenue (NBR) holding discussions with the lead chambers, professionals and trade associations. So far, it appears that preparatory works of the NBR are set to make the upcoming Budget inclusive. However, one can not tell how far these discussions will get positively reflected in the Budget.
Although revenue earning is a primary concern of the country as TX-GDP ratio of Bangladesh is one of the lowest, some of the common issues of the proposals submitted to the NBR include enhancement of the tax exemption limit and incentives for various business sectors.
Income tax exemption limit is presently Tk 250,000, meaning monthly income of about Tk 21000 will come under the tax paying slab. Most of the proposals were to increase the limit, which may have some justification. As per the present policy, income of Tk 250,000 to 400,000 is taxable at a rate of 10 per cent, with allowable exemptions. If we take the highest level of income of this slab, which is about Tl 36,000 a month, the taxpayer considering all the exemptions will have to pay about Tk 1000 as income tax. While an individual assessee whose income is below the return submission requirement slab is paying minimum tax of Tk 5000 in the Dhaka and its city corporation areas, the amount varies up to Tk 3000 in other than city corporation areas. It is true that return submission has got some costs, some people may calculate their taxes on their own but they need to consult these issues with lawyers otherwise the return may not be accepted and for this some fees will have to be paid. In that respect, if income up to BDT 400,000 remains exempted from tax paying system, the treasury will not have to face revenue loss.
It means that exempted tax slab will not mean that NBR will be loser, rather it can increase tax income and at the same time harassment of tax payers can also be reduced. Small monthly income holders do not like to face hassles, they prefer a fixed tax. Salaried people are giving this tax at source which the employers are deducting from their salary.
Turn-over tax is another hassle as it has been raised to 0.6 per cent irrespective of profit or loss. It is a burden for those running small businesses, and hence needs to be revisited. Deemed and direct exporters supplying accessories to plastic, pharmaceuticals and garment sectors need to get reduced corporate tax rate. Deemed exporters are mostly SMEs, they supply mostly to RMG factories which is the largest export sector of the country. It is ironical that RMG sector enjoys reduced rate of corporate tax at 10 per cent but the small suppliers pay 35 per cent corporate tax.
Rationalisation of advanced Income tax (AIT) at import stage is another important issue. AIT is levied under Rule 17A of Income Tax Ordinance, 1984 at a flat rate of 5 per cent on assessable value. Advance tax collection is against the policy of income tax as the tax is not levied on earned (wages, commissions, and bonuses) or unearned income (dividends, interest, or rent) of the enterprises. Since the government needs revenue and AIT has been in the system for long, the rate should be lowered to maximum 3 per cent. Many businesses do not get profit more than 5 per cent. During the time of transaction/business, it is mostly impossible to adjust 5 per cent deducted tax at source. This sometimes encourages taxpayers to dodge tax through unethical ways such as miss-declaration of import.
As per ITO 1984, Six Schedule, Section-29, income derived from any Small and Medium Enterprise (SME) engaged in production of any goods and having an annual turnover of not more than Tk 3.6 million is taxable. Tax exemption threshold for SMEs can be raised to Tk 5.0 million. Raising tax exemption threshold for cottage, micro and small industries would expedite growth of these enterprises and help generate employment.
Tax Holiday (TH) benefit, a benefit for businesses to grow, is not sufficiently spread out. So far, it is seen to apply to about 408 industries (2017-18. In the year 2015-16, tax benefits for these TH companies were Tk 2.08 billion. EPZA and BEZA have their own policies to provide TH benefits for the companies. Stringent policies and the calculation of tax from the date of commercial operation (Income Tax Act 1984; Section: 45-a) could be the reason for lesser utilisation of the benefit. A number of countries have utilised the benefit for making regional dispersion of industrialisation as the benefit is mostly given for establishing industries in the remote areas. In the check list for availing TH, there could be a break-even analysis plan so that the profitability period can be identified clearly. Firms can escape Accelerated Depreciation Allowance process as an eligibility criterion to avail TH benefits. The checklist for tax holiday application will help the taxpayer to specify the nature and business plan of the venture. It would also help the tax authority to decide whether the enterprise needs any fiscal concession and to what extent.
The TH period should start from profit-making period instead of commencement of commercial production stage, as in countries like Thailand where they do not calculate TH benefits from the date of commercial production. Counting TH period from commercial production means the venture is making profit from the first day of production, but the venture requires at least three years for reaching the profit quadrant after commencing its first commercial production. If the enterprise consumes maximum of its TH entitlement period before acquiring any profit, it would not reap the benefit of fiscal stimulus provided by the government. Each year after Budget announcement, the list of TH entitled sector is revisited, now about 23 sectors (Income Tax ordinance 1984; Section: 46-b) are allowed to get TH facilities, but all of them are not yet ready to enjoy TH benefits, while there are some ready sectors which are not included in the list. Tax Holiday facility should be ensured for all industries except economically, socially, environmentally dubious ones that are not aligned with the country and global perspective. TH policy can also be included in the Income Tax section of the Finance Act and Paripatra issued.
Customising digitised IT return Form is another pressing issue -- IT-11GA2016 (4 pages). Basic information of 11GA2016 Form should be completed automatically whenever the taxpayer wants to print or download a filled in Application Form to submit the IT return.
In the Return Form of withholding taxes 15-G can be amended by the words "Deduction from the payment of Services rendered or originated from Economic Jurisdiction of Bangladesh". In this regard a new description on the above-mentioned heading needs to be incorporated in ITO 1984, Section 52AA. With the rise of digital economy there are new categories of services coming up. For inclusion of all forms of digital platform-based services rendered and originated inside Bangladesh, this change would increase tax network and simplify tax deduction at source of new services such as advertising in digital media, broadcasting or rendering any international digital content in Bangladesh in a view to create economic values of digital content etc.
There is no denying that the tax system in the country is skewed and it is the small income earners who pay more tax than the rich - one of the reasons for income inequality. The government needs to take a logical stand in collecting tax revenue so that those who want to pay tax are facilitated by rational and simple policies.
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