Taxpayers in the low-income bracket have something to feel good about.
They are going to pay less tax in the next fiscal year. This means they will have more disposable income and be able to spend more to meet the needs of their families amid Covid-19 pandemic.
The government will introduce a new tax rate of 5 percent on annual income up to Tk 400,000. It has maintained the tax rate at 10 percent since fiscal 1997-98.
The limit of tax-free annual income will be raised to Tk 300,000 from Tk 250,000 which remained unchanged for the last five years.
Rich taxpayers will also enjoy tax bill cuts as the highest tax rate of 30 percent, introduced six years ago, for high-income earners will be reduced to 25 percent.
But the ultimate gainers are the holders of undeclared money, known as black money, thanks to coronavirus-induced economic crisis that has created an opportunity for them to legalise untaxed money by paying a nominal 10 percent tax, much to the frustration of compliant taxpayers.
Over the years, successive governments offered black money holders the opportunity to whiten undisclosed income or wealth.
However, a small amount of money has been brought to the formal channel. Fiscal 2007-08 saw the legalisation of the highest amount of undisclosed money — Tk 8,900 crore.
Yet, policymakers seem to be obsessed with the idea of offering black money holders scope for legalising their income.
The finance minister once again came up with such a proposal.
Citing Covid-19 crisis and the need for increased revenue, he said, “Extraordinary time requires extraordinary measures.”
He mentioned that taxpayers may make mistakes while preparing and submitting tax returns.
To offer them scope for “correcting past mistakes and bringing funds to mainstream of the economy”, he proposed that the authorities, including the income tax department, would not ask holders of undisclosed money and assets any questions about their wealth to be disclosed in income tax returns from July 1, 2020 to June 30, 2021.
His proposal for allowing taxpayers to disclose their undeclared land, buildings and apartments on payment of a specific amount of tax is likely to give a boost to the coronavirus-hit real estate and construction sectors.
The ailing stock market may benefit too as he proposed giving black money holders the scope for investing in it.
Seeking anonymity, a senior tax official said the proposal might work if the law is strictly enforced to compel the holders of undisclosed income to declare assets and pay tax.
Otherwise, it is unlikely to bring desired results, the official added.
Talking to The Daily Star, Syed Aminul Karim, former member (tax policy) of the National Board of Revenue (NBR), said, “Irregular taxpayers are going to be the main beneficiaries. They will reap the ultimate benefit of the new tax measures.”
The proposal for offering amnesty may help bring some money to the formal channel and also encourage people to bring back funds from abroad, he pointed out.
If the money is invested, a lot of jobs will be created and society will benefit indirectly, he added.
Non-listed companies are going to see a reduction in tax liability as corporate tax has been slashed to 32.5 percent from 35 percent which remained in place for the last six years.
“I think it will give a lot of relief to non-listed companies and enable them to get through these tough times,” said Aminul.
Tax from listed and non-listed companies accounted for 64 percent of the total revenue collection of Tk 56,700 crore in fiscal 2017-18. The majority of it came from non-listed companies which include various multinational firms.
In the next fiscal year, the NBR will lose out on a good amount of revenue due to the tax cuts for firms and individuals. It has been assigned to collect Tk 330,000 crore, which is 10 percent higher than the revised collection target of Tk 300,500 crore in the outgoing fiscal year.
A large number of taxpayers will also be out of the income tax net because of the rise in the limit of tax-free annual income.
Besides, minimum tax, wealth tax surcharge and corporate tax rates for companies other than non-listed firms will remain unchanged.
To offset tax loss and curb scope for evasion, the NBR sought to make the submission of income tax returns mandatory for holders of all Taxpayers Identification Numbers (TIN).
The number of TIN holders is nearly 50 lakh but only 22 lakh submit returns.
Owning a car will be more expensive as advance tax on registration and fitness renewals of vehicles will be hiked by up to 67 percent.
Also, exporters may have to pay 0.5pc tax at source on their export earnings in the next fiscal year as the existing 0.25pc tax benefit is set to end this fiscal year, said a tax official.
However, the existing tax benefits for garment and knitwear sectors, which now pay 12 percent corporate tax, will be extended for the next two years.
Advance Tax on import of industrial materials will be reduced to 4 percent from 5 percent.
Besides, there will be VAT benefits for manufacturers of automobile, refrigerators, air conditioners, mobile handsets, Covid-19 test kits, personal protective equipment, surgical masks and medicine for coronavirus.
However, mobile phone users will have to bear heavier tax burden as supplementary duty (SD) on mobile phone usage has been increased to 15 percent from 10 percent.
SD on registration of cars as well as service charges will be increased to 15 percent from 10 percent. SD on cigarettes and other tobacco items will also be raised.
The tax measures will also sadden any holder of a bank account with more than Tk 10 lakh as the excise duty will rise up to 60 percent.
Compliant businesses are likely to face difficulties in seeking remedy for higher-than-actual VAT claims by field offices. Businesses will have to pay 20 percent of the VAT, claimed by the VAT authority, to be able to appeal against the claims. It was 10 percent in the outgoing fiscal year.
Yet, there will be some relief for businesses as the finance minister proposed easing rules regarding VAT rebate.