A F Nesaruddin, FCA
There is no denying the fact that budget 2017 is the largest one in terms of its size in the history of Bangladesh. A country like Bangladesh struggling for enlistment in the middle income country should also be aggressive in a manner the Finance Minister indicated in various forums during budget discussion. Finance Minister also expressed his great satisfaction claiming the budget 2017 as one of the best budget in his life as long serving Finance Minister. There are long and ongoing debates about success of this large budget considering the overall capacity of the National Board of Revenue apart from impact on business and individuals.
The size of the total budget this year is Tk 400,266 crores and head-wise allocations are as follows:
As we see the source-wise allocations of revenue and expenses, one must admit that there is little scope for reducing expenditures because except for annual development plans including ongoing projects, it mostly relates to salary, benefits and other committed expenses. But if we look at the revenue aspects, there is a big challenge to meet the targets. Income tax has been depended on increasing taxes from existing taxpayers, new tax net as identified is unlikely to contribute any major amount to meet the target. Income from value added tax is depended on successful implementation of new VAT Act. Recording systems and transparency in book keeping is prerequisite for successful implementation of VAT but in our country, there is huge lacking in this regard giving scope for corruption and evasion of VAT. Complex adjustment and refund systems are also impediments to encourage tax payer to respond properly. This year, income projected on foreign aid and loans appear to be unrealistic. Highest foreign aid received so far was around Tk 22,000 crores while the amount projected this year is Tk 46,420 crores. Ultimately, deficit has to be financed from bank loans impacting on reduction in the capacity of private sector investment and higher interest burden from the government exchequer. Alternatively, annual development plans have to be downsized appropriately to match expenditures with revenues.
As we can see the Finance Bill 2017, many of the tax proposals are positive and they deserve appreciation. Some of them are – a) Raising the taxable threshold of income for physically or mentally challenged tax payments; b) Imposition of 2.5% surcharge on the income earned from production of Cigarette, bidi and other tobacco products. Other than these, tax rates for companies and individuals have been kept un-changed in general; c) The area of tax exemption for IT Enabled Service (ITES) has been expanded to include 8 new types of ITES; d) Tax rate for export Oriented readymade garments has been reduced from 20% to 15%. Moreover, the RMG Company which will earn internationally recognized “Green Building Certification” will pay tax at the rate of 14%; e) Any cash or other benefit received with national prize or awards or any allowance received from Bangladesh Muktijoddha Kalyan Trust are exempted total income; f) Income earned from running an “Elderly care home” is to be tax exempt; g) In the field of assessment section 82BB of the Income Tax Ordinance (relating to Universal Self Assessment) has been revised to provide, among other things, that an “amended return” may be submitted during the processing stage of a self assessment return. This will be a welcome measure for many tax payers; h) The bill introduces a provision to disallow salary expense of the employer if the salary is paid after Tax Day to an employee who is required to file tax return but has failed to do so within the specified time; i) Any loan or gift exceeding Tk. 500,000 taken by an individual, otherwise than through banking system is treated as taxable income for the recipient u/s-19(28) of the Income Tax Ordinance 1984. This year’s budget proposes to make the provision that loans or gifts received from spouse or parents will not come within the purview of this law; j) Where imported goods on which tax has been deducted at import stage are supplied, tax deductible at supply stage will be the total amount of deductible on the value of supplies minus tax deducted at import stage; k) The value of gross wealth for compulsory submission of wealth statements by individual tax payers has been increased from Taka 20lac to 25 lac in section 80 of the Income Tax Ordinance 1984.
Further, in the administrative side also there are some positive proposals in the budget such as – i) Establishment of central withholding Tax Unit and introduction of electronic tax withholding system; ii) Establishment of two new tax zones in Jessore and Kustia; iii) Establishment of 103 new tax circle at upazilla level.
In addition, scope of tax net has been increased and in some cases, reemphasized for mandatory filing of tax returns and also mandatory furnishing of eTIN in certain category of people obtaining specific services.
These measures are expected to expand the tax base and improve tax collection. However, it must also be mentioned that this year’s tax proposals in the budget have also given us genuine reason for frustration and disappointment. We shall now discuss some of those points and these are – a) For individual tax payers (general category) taxable threshold of income has been kept unchanged at Taka 250,000 for the 3rd year in a row. Even if we only consider the annual inflation rate (5% to 7% by conservative estimates) this amount should have been increased reasonably; b) In case of companies the existing tax rate (general) of 35% is considered pretty high compared to other countries of the region. There were demands from various quarters to reduce this rate. But this was kept unchanged; c) Two important section of the Income Tax Ordinance 1984 namely section 82BB relating to Universal Self Assessment Scheme and section 93 relating to reopening of cases have been totally replaced. But apparently they have been made more complicated and not at all tax-payers friendly. Further, there is no indication of transparency or accountability; d) There is no measure to curb the discretionary powers of tax assessing officials. These officials arbitrarily disregard audited accounts, make huge addition to tax payer’s income and create a heavy tax burden. Tax payers do not get proper redress in many cases against these arbitrary assessments even in appeal or Taxes Appellate Tribunal. Thus they face a helpless situation and being harassed unjustifiably; e) Selection of self assessment returns for audit is still not done in any neutral or objective basis. It is done on personal choice of tax officials depending on their personal likes and dislikes or some other personal motive. No step has been taken in this year in this regard to improve the situation; f) It has been a long standing demand of tax professionals and others that there should be a judicial member in each bench of the Taxes Appellate Tribunal. Because, all members of the Tribunal are now Tax Commissioners on deputation and consequently the Tribunal has lost its neutrality and impartiality in a general sense; g) Certain emerging and employment generating industries like tourist industries are still kept out of tax holiday or reduced tax rates in the current tax laws; h) Tax rate for non-listed companies has been reduced nominally from 37.50% to 35%. But the corporate tax structure as a whole has been kept unchanged. Our corporate tax rate is quite high compared to other countries of the region. There has been continued request and appeal from concerned quarters to reduce and rationalize our corporate tax structure. Further, arbitrary and unjustifiable disallowances and additions to taxable income also lead to increase the effective rate of taxes. Mere increasing rate may apparently seems higher tax revenue but in reality, this encourages to have tendency for tax evasion. This issue need to be addressed for reasons which need no elaboration; k) Section 82C was introduced to simplify tax assessment procedures considering collected tax as final settlement. But in recent amendments, additional tax are also being collected over the tax collected under 82C. The charging additional tax under this provision is against the basic principle of “Final Settlement” and self-contradictory; l) Certain emerging and employment generating industries like tourist industries are still kept out of tax holiday or reduced tax rates in the current tax laws; m) Similarly, no fiscal incentives offered to potential investors in food and agriculture preserving installations like sophisticated and modern cold storage for ensuring fair price to agriculture producers and reducing price gap between producers and consumers levels; n) No provision appears with respect to investment by ‘provident fund’, ‘gratuity fund’ and ‘pension fund’. In Bangladesh, no pension benefits are sponsored by the state and in such a situation, an incentive for investments by such funds was absolutely essential apart from avenues of investments (allowing tax-free easier investment in Sanchaypatra and similar other instruments).
Two critical points have been noticed this year and these are – a) imposition of excise duty @Tk 500 on bank deposits over Tk 100,000 and b) disallowances of salary payments made after Tax Day in case an employee defaults in filing tax returns within the Tax Day or extended time granted by the revenue authorities. In the first case, general people will be affected and there is no reason for imposing such levy when it is uncertain whether the bank depositor is an assesse falling minimum taxable threshold. On the other hand, in the second case, it will definitely increase cost of business. At present, Employer’s obligation is to withhold tax from salary and no obligation about filing or monitoring of tax return by the employees. Monitoring of filing of tax returns is the responsibilities of the tax department. If the proposed amendment is enacted, employer will have to monitor filing of tax returns by employees. If any employee fails to file return on tax day or within extended period, any payment made thereafter for his/her salary will be inadmissible expenses in the hands of employer. In other words, payment of salary in such cases has to be suspended to avoid disallowance. No doubt, this is an illogical provision and very difficult to implement. For example, a RMG group having over 3,000 employees (having Tk 16,000 basic salary pm) will face severe problem to comply this regulations nor they can withhold salary which will antagonize the employees and create chaos in the business. Fundamentally, monitoring the filing of tax returns is the responsibility of NBR, not the employers. However, let us see, how business leaders reacts and what is finally approved in the Jatiyo Sangshad.
In fact, there are a numerous instances where NBR is shifting their responsibility to tax payers due to lack of their capability. No doubt, NBR needs capacity building otherwise implementation of any big budget is not only difficult but impossible.
Considering the people’s expectation, reducing corruption and sufferings of the genuine tax payers, developing a good relationship between the tax payers and collectors (as opposed to existence of mistrust in many cases), lack of adequate manpower with required expertise in the tax department, weak tax administration structure in terms of close monitoring and application of fair judgment and many other related issues, it is pertinent to consider and review the issues discussed above for a realistic, pragmatic and achievable Finance Act 2017.
(A F Nesaruddin FCA is a practicing chartered accountant and a senior partner of Hoda Vasi Chowdhury & Co.)
There is no denying the fact that budget 2017 is the largest one in terms of its size in the history of Bangladesh. A country like Bangladesh struggling for enlistment in the middle income country should also be aggressive in a manner the Finance Minister indicated in various forums during budget discussion. Finance Minister also expressed his great satisfaction claiming the budget 2017 as one of the best budget in his life as long serving Finance Minister. There are long and ongoing debates about success of this large budget considering the overall capacity of the National Board of Revenue apart from impact on business and individuals.
The size of the total budget this year is Tk 400,266 crores and head-wise allocations are as follows:
As we see the source-wise allocations of revenue and expenses, one must admit that there is little scope for reducing expenditures because except for annual development plans including ongoing projects, it mostly relates to salary, benefits and other committed expenses. But if we look at the revenue aspects, there is a big challenge to meet the targets. Income tax has been depended on increasing taxes from existing taxpayers, new tax net as identified is unlikely to contribute any major amount to meet the target. Income from value added tax is depended on successful implementation of new VAT Act. Recording systems and transparency in book keeping is prerequisite for successful implementation of VAT but in our country, there is huge lacking in this regard giving scope for corruption and evasion of VAT. Complex adjustment and refund systems are also impediments to encourage tax payer to respond properly. This year, income projected on foreign aid and loans appear to be unrealistic. Highest foreign aid received so far was around Tk 22,000 crores while the amount projected this year is Tk 46,420 crores. Ultimately, deficit has to be financed from bank loans impacting on reduction in the capacity of private sector investment and higher interest burden from the government exchequer. Alternatively, annual development plans have to be downsized appropriately to match expenditures with revenues.
As we can see the Finance Bill 2017, many of the tax proposals are positive and they deserve appreciation. Some of them are – a) Raising the taxable threshold of income for physically or mentally challenged tax payments; b) Imposition of 2.5% surcharge on the income earned from production of Cigarette, bidi and other tobacco products. Other than these, tax rates for companies and individuals have been kept un-changed in general; c) The area of tax exemption for IT Enabled Service (ITES) has been expanded to include 8 new types of ITES; d) Tax rate for export Oriented readymade garments has been reduced from 20% to 15%. Moreover, the RMG Company which will earn internationally recognized “Green Building Certification” will pay tax at the rate of 14%; e) Any cash or other benefit received with national prize or awards or any allowance received from Bangladesh Muktijoddha Kalyan Trust are exempted total income; f) Income earned from running an “Elderly care home” is to be tax exempt; g) In the field of assessment section 82BB of the Income Tax Ordinance (relating to Universal Self Assessment) has been revised to provide, among other things, that an “amended return” may be submitted during the processing stage of a self assessment return. This will be a welcome measure for many tax payers; h) The bill introduces a provision to disallow salary expense of the employer if the salary is paid after Tax Day to an employee who is required to file tax return but has failed to do so within the specified time; i) Any loan or gift exceeding Tk. 500,000 taken by an individual, otherwise than through banking system is treated as taxable income for the recipient u/s-19(28) of the Income Tax Ordinance 1984. This year’s budget proposes to make the provision that loans or gifts received from spouse or parents will not come within the purview of this law; j) Where imported goods on which tax has been deducted at import stage are supplied, tax deductible at supply stage will be the total amount of deductible on the value of supplies minus tax deducted at import stage; k) The value of gross wealth for compulsory submission of wealth statements by individual tax payers has been increased from Taka 20lac to 25 lac in section 80 of the Income Tax Ordinance 1984.
Further, in the administrative side also there are some positive proposals in the budget such as – i) Establishment of central withholding Tax Unit and introduction of electronic tax withholding system; ii) Establishment of two new tax zones in Jessore and Kustia; iii) Establishment of 103 new tax circle at upazilla level.
In addition, scope of tax net has been increased and in some cases, reemphasized for mandatory filing of tax returns and also mandatory furnishing of eTIN in certain category of people obtaining specific services.
These measures are expected to expand the tax base and improve tax collection. However, it must also be mentioned that this year’s tax proposals in the budget have also given us genuine reason for frustration and disappointment. We shall now discuss some of those points and these are – a) For individual tax payers (general category) taxable threshold of income has been kept unchanged at Taka 250,000 for the 3rd year in a row. Even if we only consider the annual inflation rate (5% to 7% by conservative estimates) this amount should have been increased reasonably; b) In case of companies the existing tax rate (general) of 35% is considered pretty high compared to other countries of the region. There were demands from various quarters to reduce this rate. But this was kept unchanged; c) Two important section of the Income Tax Ordinance 1984 namely section 82BB relating to Universal Self Assessment Scheme and section 93 relating to reopening of cases have been totally replaced. But apparently they have been made more complicated and not at all tax-payers friendly. Further, there is no indication of transparency or accountability; d) There is no measure to curb the discretionary powers of tax assessing officials. These officials arbitrarily disregard audited accounts, make huge addition to tax payer’s income and create a heavy tax burden. Tax payers do not get proper redress in many cases against these arbitrary assessments even in appeal or Taxes Appellate Tribunal. Thus they face a helpless situation and being harassed unjustifiably; e) Selection of self assessment returns for audit is still not done in any neutral or objective basis. It is done on personal choice of tax officials depending on their personal likes and dislikes or some other personal motive. No step has been taken in this year in this regard to improve the situation; f) It has been a long standing demand of tax professionals and others that there should be a judicial member in each bench of the Taxes Appellate Tribunal. Because, all members of the Tribunal are now Tax Commissioners on deputation and consequently the Tribunal has lost its neutrality and impartiality in a general sense; g) Certain emerging and employment generating industries like tourist industries are still kept out of tax holiday or reduced tax rates in the current tax laws; h) Tax rate for non-listed companies has been reduced nominally from 37.50% to 35%. But the corporate tax structure as a whole has been kept unchanged. Our corporate tax rate is quite high compared to other countries of the region. There has been continued request and appeal from concerned quarters to reduce and rationalize our corporate tax structure. Further, arbitrary and unjustifiable disallowances and additions to taxable income also lead to increase the effective rate of taxes. Mere increasing rate may apparently seems higher tax revenue but in reality, this encourages to have tendency for tax evasion. This issue need to be addressed for reasons which need no elaboration; k) Section 82C was introduced to simplify tax assessment procedures considering collected tax as final settlement. But in recent amendments, additional tax are also being collected over the tax collected under 82C. The charging additional tax under this provision is against the basic principle of “Final Settlement” and self-contradictory; l) Certain emerging and employment generating industries like tourist industries are still kept out of tax holiday or reduced tax rates in the current tax laws; m) Similarly, no fiscal incentives offered to potential investors in food and agriculture preserving installations like sophisticated and modern cold storage for ensuring fair price to agriculture producers and reducing price gap between producers and consumers levels; n) No provision appears with respect to investment by ‘provident fund’, ‘gratuity fund’ and ‘pension fund’. In Bangladesh, no pension benefits are sponsored by the state and in such a situation, an incentive for investments by such funds was absolutely essential apart from avenues of investments (allowing tax-free easier investment in Sanchaypatra and similar other instruments).
Two critical points have been noticed this year and these are – a) imposition of excise duty @Tk 500 on bank deposits over Tk 100,000 and b) disallowances of salary payments made after Tax Day in case an employee defaults in filing tax returns within the Tax Day or extended time granted by the revenue authorities. In the first case, general people will be affected and there is no reason for imposing such levy when it is uncertain whether the bank depositor is an assesse falling minimum taxable threshold. On the other hand, in the second case, it will definitely increase cost of business. At present, Employer’s obligation is to withhold tax from salary and no obligation about filing or monitoring of tax return by the employees. Monitoring of filing of tax returns is the responsibilities of the tax department. If the proposed amendment is enacted, employer will have to monitor filing of tax returns by employees. If any employee fails to file return on tax day or within extended period, any payment made thereafter for his/her salary will be inadmissible expenses in the hands of employer. In other words, payment of salary in such cases has to be suspended to avoid disallowance. No doubt, this is an illogical provision and very difficult to implement. For example, a RMG group having over 3,000 employees (having Tk 16,000 basic salary pm) will face severe problem to comply this regulations nor they can withhold salary which will antagonize the employees and create chaos in the business. Fundamentally, monitoring the filing of tax returns is the responsibility of NBR, not the employers. However, let us see, how business leaders reacts and what is finally approved in the Jatiyo Sangshad.
In fact, there are a numerous instances where NBR is shifting their responsibility to tax payers due to lack of their capability. No doubt, NBR needs capacity building otherwise implementation of any big budget is not only difficult but impossible.
Considering the people’s expectation, reducing corruption and sufferings of the genuine tax payers, developing a good relationship between the tax payers and collectors (as opposed to existence of mistrust in many cases), lack of adequate manpower with required expertise in the tax department, weak tax administration structure in terms of close monitoring and application of fair judgment and many other related issues, it is pertinent to consider and review the issues discussed above for a realistic, pragmatic and achievable Finance Act 2017.
(A F Nesaruddin FCA is a practicing chartered accountant and a senior partner of Hoda Vasi Chowdhury & Co.)
