Strict laws, not higher benefits, for individual taxpayers

There is no good news for individual taxpayers in the budget for the fiscal year of 2022-23. Rather, there are stricter tax laws that will reduce the existing tax benefits they enjoy, thus increasing their tax burden.  

For the last few years, the rate of corporate tax on profit has been reducing, but the tax rate and the minimum tax-free limit have remained the same except for the financial year of 2020-21.

Every year taxpayers expect that the minimum tax-free limit will be increased considering the inflation rate and they wonder, as usual, when the tax rate and the tax-free limit were kept unchanged for FY23.

The tax-free limit is the main focus area for all of us. But the main focus area should be the exemption limit for the salaried person.

While calculating taxable income, a salaried taxpayer has the option to exclude a certain amount as per tax rules i.e., the maximum ceiling for house allowance of Tk 25,000, the conveyance allowance of Tk 2,500 and the medical allowance of Tk 10,000. And these figures are monthly.

Is it possible for a salaried person to afford a monthly conveyance with Tk 2,500? If it is not possible, why is the amount not being adjusted during the budget considering the present scenario?

The landlord raises the house rent each year. Is it possible to manage a house with this amount for a family? Why aren't these burning questions raised during the budget?

On the other hand, the excess perquisite limit for the corporate sector has increased significantly from Tk 5.50 lakh to Tk 10 lakh, which will reduce the corporate tax liability. The excess perquisite is calculated considering the payment in the areas of house rent, medical allowance, conveyance etc. to the employee.

Now the question is: Why has the benefit for the corporate sector suddenly jumped when the benefit to employees has not increased in the same areas?

The benefit is not provided to individual taxpayers either. Moreover, the existing benefit has shrunk by the proposed budget.

The tax rebate is the main window to reduce the tax liability by the individual taxpayers. A single tax rebate rate of 15 per cent has been proposed. It was 15 per cent for the people who have income up to Tk 15 lakh but 10 per cent for the people having a taxable income exceeding Tk 15 lakh. This will benefit high-income earners.

But the eligible amount known as investment allowance on which the tax rebate is calculated, the ceiling has been reduced to 20 per cent from 25 per cent. This will be the main concern for the taxpayers.

Here, this will have two negative impacts directly on a broad scale. First, the low- and medium-income earner's tax liability will increase. Second, taxpayers will tend to have fewer savings as the ceiling is now 20 per cent.

In the last few years, it was heard that a national savings scheme will be rolled out but there has been no progress to this effect.

In the private sector, the Provident Fund and the Gratuity Fund are not available mostly. As a result, they leave their jobs empty-handed during retirement. How will they survive after retirement?

When it comes to savings, there should be an emphasis on private-sector employees so that they can have more money when they retire.

A few proposed areas will create fear in the mind of people. In a few cases like maintaining savings deposits and fixed deposits with banks or financial institutions, applying for loans exceeding Tk 5 lakh and opening a postal savings account of Tk 5 lakh, depositors will have to show the proof of submission of the income tax return.

Banks and financial institutions will deduct the tax at 15 per cent instead of 10 per cent if the depositor fails to submit the proof of return filing. Currently, the depositor enjoys the reduced tax at source if he or she provides the taxpayer identification number (TIN). This move will create additional compliance for the general people.

Mainly, housewives deposit money in their savings deposit account on a monthly basis after meeting the monthly family expenses. And if the saving amount reaches a good amount after a few years, they invest in a government-issued savings certificate or deposit in a postal savings account. Now, the proposed strict laws will negatively impact the savings of these people.

The proof of filing tax returns will create confusion for the employees in the private sector. The salaried persons holding managerial, administrative and supervisory positions in the private sector and the government employees with a basic salary of Tk 16,000 or more at any time of an income year will have to submit the proof of the return filing.

Except in the manufacturing industry, in an office, most are included in the management or administrative function. So, the employer may instruct all of its employees to file returns irrespective of their yearly income from salary just to be on the safe side. The ceiling, like government employees, would be a good decision for the private sector.

The requirement to file tax returns for the individuals who sell goods or services through digital platforms to consumers will generate confusion as well. University students sell products on digital platforms on a seasonal basis by opening a page. Their income from these activities is not high.

Bangladesh has a lower tax-to-GDP ratio compared to other countries. But the government should not push for more compliance to raise the ratio because this will negatively impact the new taxpayers.

Rather, the government should simplify the tax return submission process so that taxpayers are assured that the filing is not complex and will not create any problems in future.

The author is lead tax consultant of Taxpert, an online training centre. He can be reached at jasim.uddin@taxpertbd.com.