Gifts not sweet anymore as NBR mulls taxes

Getting a gift from anyone is always fantastic, but that pleasure may dull from the next fiscal year as the National Board of Revenue (NBR) will consider presents received from a loved one as additional income, meaning presents may end up costing the recipient.

If someone receives a gift, they will have to show it in their income tax return at the end of the year. At the same time, the person who gives the present will also have to inform it in their income tax return.

However, this tax will not apply to gifts for an individual's husband, wife, parents or children although those gifts must also be included in tax returns.

Finance Minister Abul Hassan Mahmood Ali proposed the provision in the Finance Bill 2024 while unveiling the budget for fiscal year 2024-25 on Thursday.

The revenue authority is adopting the measure to curb tax evasion and narrow the opportunity to illegally transact income through banking channels as gifts, according to a senior official of the NBR.

All beneficiaries of gifts will be subject to taxes under the proposed finance bill. This means that in addition to the recipient having to pay income tax at the standard rate, the person giving the gift will also have to pay taxes.

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Rethinking the Gift Tax Act 1990

"This move will definitely help increase the transparency of transactions," said Snehasish Barua, a chartered accountant and a director of SMAC Advisory Services Ltd, a consultancy firm.

Deen Islam, an associate professor of economics at the University of Dhaka, also welcomed the move.

"This will contribute to domestic resource mobilisation and increase the contribution of direct taxation, which may help tackle rising inequality in the country," he said.

"Additionally, it could discourage tax avoidance and use of money for unproductive purposes."

So, it will be efficient to apply this tax if the amount is tax-eligible, he said. However, to avoid double taxation, this should only be imposed on either the gift receiver or the giver, but not both.